Legal Insights From Brazil to Start Your Week

Sporting Bets | 6 Key Points About the New Regulation for Authorization of Fixed Odd Betting Companies in Brazil

The Brazilian Ministry of Finance published rules and conditions for obtaining authorization for commercial exploitation of the lottery modality of fixed-odd betting (bets) in Brazil.

The Regulation N. 827, dated May 21, 2024, awaited by Brazilian and international sports betting groups, will allow the regularization of this business in the sports betting and online gaming segments.

For “bets” to obtain authorization from the Brazilian Ministry of Finance, they must meet criteria in 5 categories: legal qualification, tax and labor regularity, suitability, economic-financial qualification and technical qualification.

We describe below 6 important points of the Regulation 827 to be observed:

1. Legal Qualification of the Fixed Odd Bets Company: Legal qualification requires information about controlling shareholders, holders of qualified equity participation, administrators and final beneficiaries of the betting company.

It will be necessary to inform (i) the financial and payment institutions that will provide financial services to the betting company, and (ii) the internal organizational chart and organizational structure of the economic group to which it belongs.

2. Fiscal and Labor Regularity of the Fixed Odd Bets Company: It will be necessary to prove (i) fiscal regularity with the Brazilian National Treasury, (ii) regularity with the state treasury where the betting company is headquartered, (iii) regularity with the municipal treasury where it is headquartered, (iv) FGTS regularity, and (v) regularity of labor debts.

3. Suitability of the Bets Company: The applicant must present documents proving an unblemished reputation, corrective denial and denial of unreputable and disqualified bidders.

In the case of controlling shareholders and holders of qualified holdings, they must provide a declaration of unblemished reputation, a declaration of the lawful origin of the funds that make up the equity capital of the applicant betting company, in addition to other documents and declarations applicable to legal entities or individuals.

4. Economic-Financial Qualification of the Fixed Odd Bets Company: Among the main requirements are (i) proof of constitution of a financial reserve of at least BRL 5 million, (ii) proof of payment in current currency of the minimum share capital of BRL 30 million, and?(iii) proof of minimum net worth of BRL 30 million. If the betting company requires additional authorizations, the above amounts will be required to be supplemented, through an act of authorization granted.

The regulation also requires the participation of Brazilian citizen or entity as partner holding at least 20% of the legal entity's equity.

5. Technical Qualification of the Fixed Odd Betting Company: Technical qualification will be proven, among other requirements, through (i) technical certificate of the betting system, and (ii) declaration of adoption and implementation of policies, procedures and controls of (ii.1) prevention of money laundering, terrorist financing and the proliferation of weapons of mass destruction, (ii.2) responsible gambling and prevention of pathological gambling disorders, (ii.3) code of conduct and dissemination of good advertising and advertising practices,?(ii.4) betting integrity and prevention of manipulation of results and other frauds, (ii.5) liquidity risk management, (ii.6) continuity of Information Technology, and (ii.7) corporate governance structure compatible with the complexity, specificity and risks of the business.

6. Deadlines to be Observed by Fixed Odd Betting Companies: Betting companies that submit the authorization request within the first 90 days of the publication of Regulation 827 will be guaranteed (i) the sending of the notification to make payment for the grant or rejection of the request authorization within 180 days of publication of the Regulation, and (ii) the granting of authorization until December 31, 2024, as long as the legal requirements are met.

From January 1, 2025, legal entities that are active in Brazil without due authorization for commercial exploitation of the fixed-odd lottery betting modality will be subject to the relevant penalties.

National and international betting groups must comply with the terms of the Ordinance with a view to regularizing the operation of this business in the sports betting and online gaming segments.

Virtual Assets | Brazilian Central Bank Issues New Regulatory Roadmap With Respect to Virtual Assets Service Providers in Brazil

In order to regulate cryptocurrency in Brazil, Brazilian Central Bank (BACEN) published their regulatory roadmap in relation to virtual asset service provision activities.

The goal is to provide the Brazilian cryptoeconomy with the security and transparency necessary for this market’s success, with a focus on governance, good practices, and minimum authorization requirements.

The measures will be developed and implemented aiming the protection of the investing public, with a focus on Virtual Asset Service Providers (VASPs), which will need authorization from BACEN to operate the direct offering, intermediation and custody of cryptoassets.

We highlight below the main points of BACEN’s regulatory roadmap for the Brazilian crypto economy in 2024:

1. New Public Consultation: The intention is to deepen understanding with the market in the second half of the year, with emphasis on the general rules for the operation and authorization of VASPs. The first public consultation (broader) ended in January 2024 and the comments and manifestations are being systematized;

2. Regulation of Stablecoins: BACEN intends to delimit the internal planning for the regulation of currencies linked to stable assets (stablecoins), with emphasis on its own competence regarding payments and the foreign exchange and international capital markets;

3. Adjustments to the Complementary Framework: Efforts will be focused on specific operational standards and ancillary obligations such as risk management requirements, minimum capital, suitability, accounting, and provision of information, as well as the integration of VASPs into markets such as exchange and international capital.

BACEN seeks to maintain the stability of the National Financial System, its main function. Through updates and adjustments, aligned with international positions, the evolution of market understanding and that of other regulators (such as the CVM, the Brazilian SEC), this schedule will be better detailed and may address topics such as specific virtual assets.

The news comes simultaneously with the postponement of DREX to 2025 (Brazilian digital currency), due to the insufficient maturity presented by the technological privacy solutions in the Brazilian CBDC’s pilot, which indicates that Brazilian regulatory authorities are concerned about the effectiveness of the standards implemented, although they continue to stimulate technological innovation and financial progress.