Faced with the advances in the crypto economy and their impact on the capital market, the Brazilian Securities and Exchange Commission (CVM) has directed market participants on issues that affect the sector with the aim of ensuring legal certainty.

In this context, and as a complement to CVM Guidance Opinion No. 40, published at the end of 2022, the recently published Circular Letter 04/23/CVM/SSE, of April 4, 2023, prepared by the Superintendence of Securitization Supervision - SSE, the technical department dedicated to structured investments involving innovation, stands out. The Circular Letter brings guidance on the possible characterization of "tokens of receivables" or "fixed income tokens" (together, "TRs") as securities, in addition to pointing out the possibility of making a public offering of these securities under a simplifies regulatory regime provided for in CVM Resolution No. 88/2022 (crowdfunding regulation).

As a central point, SSE understands that TRs with the following characteristics may represent a securitization operation based on articles 18, sole paragraph, and 19, of Law 14,430 /22 (Legal Framework for Securitization), when:

• TRs are offered publicly through "exchanges", "tokenizers" or other means;

• TRs grant fixed, variable or mixed remuneration to the investor;

• TRs can be representative, linked or backed by credit rights or debt securities;

• Interest payments and amortization of the TRs to the investor result from the cash flow of one or more receivables or debt securities;

• the credit rights or debt securities represented by the TR are assigned or issued in favor of final investors or third parties who "custody" the assets on behalf of the investors;

• the remuneration is defined by a third party, which may be the issuer of the TR, the assignor, the structurer or any agent involved in the transaction.

In addition, SSE understands that even if the token is not considered as a Certificate of Receivables or other securitization asset, under the terms of Law 14,430/22, the TR can be classified as a security, as a result of its characterization as a collective investment contract, pursuant to item IX, of article 2, of the Capital Markets Law, which must be assessed by applying a test similar to the North American Howey Test.

In order to assess the nature of the token as a collective investment contract, some criteria must be taken into such as economic investment, formalization of the collective nature of the investment, expectation of economic benefit due to the right to participation, partnership or remuneration - which must be the result of the effort of the entrepreneur or third parties, and not from external factors - and public offering. SSE points out that all requirements are usually evident, with the exception of "effort entrepreneur or third party".

In relation to such less obvious requirement, SSE interprets it as being verifiable when there is the verification of some activities (carried out by the entrepreneur or third party) such as selection, risk analysis, pricing, acquisition, maintenance, custody or management, including activities of collection or transfer of ordinary cash flows, related to the credit right that backs the issuance of the TR. This is justified in the opinion of the CVM, since the investment decision taken by the investor would be largely guided by confidence in the effort and technical capacity of the third parties involved in the structure for the performance of such activities.

Faced with market operations in which there is an offer to acquire an ideal fraction of credit rights, or debt securities, SSE emphasizes the importance of not paying attention only to the structure chosen for the formalization of the title in order to mischaracterize the securitization operation or to rule out the presence of "third-party effort", but to verify whether the TR can be classified, regardless of the structure adopted, as a security. SSE points out that this will occur under the terms of Law 14,430/22 whenever there is a de facto equivalence to the economic essence of the securitization or under the terms of Law 6,385/76 whenever or whenever there is a publicly offered collective investment agreement that generates rights of participation.

The classification of TR as a security attracts the CVM's regulatory competence over the token and the service providers involved in its structuring, distribution and trading in the secondary market.

According to CVM Guidance Opinion No. 40, the public distribution of crypto assets considered securities in the capital market is subject to prior registration with the CVM, pursuant to art. 19 of the Capital Market Law.

In addition, public offers of securities are currently regulated by CVM Resolution 160/22. Since most public offers of crypto assets occurs via the internet and without geographic restrictions, the parameters of CVM Guidance Opinion 32 and CVM Guidance Opinion 33, both from 2005, must be complied with.

Recognizing the operational challenges for registering TR offerings and the necessary compatibility of its technology with the capital market infrastructure, SSE emphasized that public offers of TRs of up to R$15 million can be compatible with the regulation of Certificates of Receivables or other securitization bonds and securities, provided for in Law 14,430/22, as well as with crowdfunding regulation, provided for in CVM Resolution 88/22.

Thus, up to this volume, securitization assets issued by closely held Securitization Companies, without registration with the CVM, can be "tokenized". In this case, it should be noted that the minimum content of the securitization term or issuance instrument is registered in the DLT network with identification of each token. Subsequently, the TR may be publicly offered through crowdfunding platforms, under the terms of CVM Resolution 88/22, thus enjoying a simplified regulatory regime for public offerings when compared to that provided for in CVM Resolution 160/22.

In this sense, the CVM's technical area brought important guidelines to enable this structure to meet the issuer's annual gross revenue limits, applicable to small business companies, as established in art. 2, item VII, and paragraph 2, of CVM Resolution 88/22. In the case of the securitization operation, such limit may be based on the separate equity, constituted through the institution of the fiduciary regime, and not necessarily on the annual gross revenue of the securitization company. However, this guideline does not apply to issuances concentrated in only one debtor, or debtors that are related parties, in view of which the concept of annual gross revenue must be applied to that debtor or its related parties.

According to crowdfunding regulation, some basic requirements for public offers of TRs under this regulatory regime must be complied with:

Limit per issuer: The issuer - and, by interpretative extension, the separate equity or the debtor and its related parties - may not exceed the annual gross revenue of R$40 million or R$80 million, considering the economic group of the separate equity or debtor and its related parties, with the offering of the security object of separate equity limited to R$15 million per year;

Bookkeeping: The securitization company is obliged to hire a bookkeeper in the following cases:

• if, at the time of contracting the crowdfunding platform that will distribute tokens, the securitization company has already carried out, on another platform, one or more public offers of securities fungible with that object of the offer, convertible therein or that become the same type of security;

• if the platform contracted to distribute the tokens does not offer the services of ownership control and equity interest, pursuant to article 13, of CVM Resolution 88/22.

The SSE clarified that the registration in the DLT network is not equivalent to the ownership control provided for in art. 12 and the token does not replace the security in its cartulary or book-entry representation, nor does it act as its certificate.

However, for cases in which Resolution 88/22 admits ownership control of securities or equity interest by the crowdfunding platform itself, the platform contracted to provide this service may make use of registrations in the DLT network, provided that it is possible control and prove the ownership and existence of transactions.

Deposit: The need to deposit "tokenized" securitization securities issued by securitization companies that are publicly offered through a crowdfunding platform is waived.

Disclosure of information: In addition to the requirements of CVM Resolution 88/22, the website and advertising materials used in the efforts to sell the TR offer must contain specific information about the tokens in accordance with the guidelines of CVM Guidance Opinion No. 40, in particular "5.1. Information on the Rights of Tokenholders" and "5.2. Information on Trading, Infrastructure and Ownership of Tokens". Language suitable for understanding by the general public must be used.

The SSE guidelines, as a technical area specialized in securitization and innovative investments, complements previous understandings disclosed by the CVM. They detail the regulator's expectations regarding compliance with the applicable regulations and point out the use of a simplified regulatory regime as an alternative, with the aim of making the emergence of new innovative structures for tokens of receivables and fixed income tokens more efficient. Disclosure of the regulator's understanding is important for the market participants to build robust structures that offer the necessary legal certainty for investors.