IMF flags Brazil crypto flows as stablecoins bypass bank rails

The central bank has moved to regulate virtual asset service providers (VASPs), but the report said Brazil still lacks legal protections for customer assets held in custody and has not fully implemented international AML/CFT standards, including the Financial Action Task Force's travel rule for crypto transfers.

Those gaps matter more as the crypto system becomes more interconnected with traditional finance, the IMF said. Regulators will need to set up advanced reporting protocols and coordinate with foreign supervisors to contain spillover risks.

The report lands as Congress prepares to consider Bill 4308/2024, which would create a regulatory framework for stablecoins. The crypto industry has pushed back against provisions that would treat stablecoins as regulated securities, arguing the designation would stifle adoption.

Brazil's crypto market has drawn increasing attention from global standard-setters. The IMF's assessment effectively puts the country on watch for how it handles the intersection of digital assets and cross-border capital flows. The central bank has said it plans to consult on custody and segregation rules later this year.