Brazil Shifts to Mandatory Tokenization in Market Oversight

The inadequacy of traditional capital market oversight in the face of massive fund size has prompted the Brazilian regulator to make a radical technological move. Otto Lobo, President of the Securities and Exchange Commission of Brazil, announced that a transition will be made to mandatory tokenization and an AI-supported surveillance model in the fund market, whose total net size exceeds $2.32 trillion and consists of more than 34 thousand active structures.

How will mandatory tokenization change the fund market?

Stating that the existing infrastructure has lost its function in the face of the sector's scale, Lobo expressed that distributed ledger technologies offer instant settlement, eliminate counterparty risk, and can digitally record the ultimate beneficiary of every transaction. Emphasizing that anti-money laundering steps to be carried out with smart contracts at the asset level will simplify compliance processes, Lobo noted that this structure will broaden the base by reducing the cost of entry into money market funds down to $20.

How many new personnel will join the oversight infrastructure?

The modernization step gained momentum as the Brazilian Supreme Court granted the CVM permission to retain 70% of its inspection fee revenues. While the institution plans to employ 1,200 new personnel over the next few years, the working group within the CVM is conducting pilot tests across 3 separate distributed ledger networks to measure cybersecurity risks and contract logic.

The exchange side is also accompanying the transformation in market infrastructure. Brazilian stock exchange B3 plans to deploy a parallel tokenization platform that will share liquidity with traditional securities by 2027. The Central Bank of Brazil also continues to support tokenization projects as a critical component of its open finance strategy.

This content is for information purposes only and does not constitute investment advice.