Brazil Pushes Mandatory Tokenization to Overhaul Market Tracking

Key Takeaways

Brazil’s SEC Defends Mandatory Tokenization For Market Surveillance Purposes

The CVM, Brazil’s equivalent of the U.S. Securities and Exchange Commission, is pushing asset tokenization as a key element to modernize market structure guardrails in combination with artificial intelligence-powered surveillance.

Otto Lobo, President of the CVM, stressed that a mandatory transition to asset tokenization is necessary to overhaul the current market supervision infrastructure, which has been overwhelmed by the growth of the fund industry in the country.

Valor Econômico pointed out that the fund industry has reached a net worth of $2.32 trillion with over 34,000 active structures, making traditional oversight methods obsolete due to the massive scale of operations.

The modernization process, expected to add 1,200 new employees in the next few years, follows a Supreme Court decision that allows the CVM to retain 70% of its inspection fee revenue, making this move to more modern oversight structures possible.

During a conference, Lobo acknowledged that decentralized ledger technologies (DLTs) offered an edge over traditional methods, enabling immediate settlements, eliminating counterparty risk, registering a continuous audit trail, and including the final beneficiaries of each transaction in a digital record.

Lobo also revealed that money laundering prevention procedures would be implemented at the asset level using smart contracts, simplifying the application of compliance and know-your-customer requirements for regulators.

He also highlighted that this modernization would also benefit customers, with entry costs to money market funds as low as $20, opening the market to new customers with a potentially large addressable market.

“We’re already testing three DLTs, with the possibility of creating native digital assets, with the possibility of then overseeing that market in a very different way,” he revealed, remarking that maintaining market integrity is crucial for tokenized assets.

Lobo refers to the experimental pilot program conducted by the CVM’s tokenization working group to map contract logic and test cybersecurity risks before a full blockchain rollout. At the time, Lobo declared that “tokenization is already transforming capital market infrastructure and brings relevant opportunities to increase efficiency, innovation, and access to new business models.”

B3, Brazil’s stock exchange, is advancing tokenization services that will operate in parallel, sharing liquidity with traditional market securities. The exchange expects this platform to be ready by 2027.