Publicado em 03/07/2020

Regulatory Sandbox: CVM launches rules for implementation and operation of an experimental regulatory environment

On June 1, 2020, the Normative Instruction No. 626 (ICVM No. 626), published by the Brazilian Securities and Exchange Commission (CVM) on May 15 of the current year, it came into effect with the purpose of regulating the implementation and operation of the experimental regulatory environment (regulatory sandbox) that aims to encourage innovations in the financial market by enabling small-scale practical testing by private companies in a controlled environment, operating under special conditions and supervision (Sandbox).

The Sandbox model appears as an alternative to the challenges associated with the commercialization of financial products and services, since it facilitates the process of making innovations available in the capital markets, while allowing the monitoring of the risks associated with new technologies in activities regulated by CVM. The essential condition is that the project presents innovation in the rendering of services, whether based on new technologies or the innovative use of existing ones, and should also have the potential to promote efficiency gains, reduce costs or increase the access of the general public to products and services of the capital market.

The process of admission of participants in the Sandbox will be initiated by a communication to the market, disclosed on the CVM website, which will indicate, among other information, a schedule for receipt and analysis of the proposals, eligibility criteria for participants, content of the proposals to be submitted and maximum number of bidders to be selected, in order not to compromise the monitoring of activities by CVM.

Furthermore, ICVM No. 626 established minimum requirements for those interested in participating in the Sandbox, which may be Brazilian or foreign legal entities, among which we highlight: (i) the exercise of an activity that fits the concept of innovative business model and that has been preliminarily validated by means of tests or prototypes, not only a model under conceptual development; (ii) the demonstration of sufficient technical and financial capacity to develop such activity; (iii) not to have direct or indirect managers and controlling shareholders who are disqualified or suspended from holding positions in financial institutions and other entities authorized to operate by regulatory agencies, or who have been convicted of any corporate crime or even who are prevented from managing or disposing of their assets due to a judicial or administrative decision; and (iv) demonstration of the ability to establish protection mechanisms against cyberattacks and undue access to their systems and to prevent money laundering and terrorist financing.

The proposals submitted will be analyzed by the Sandbox Committee – a body composed of CVM personnel and responsible for conducting specific activities related to the Sandbox – and, once deemed suitable for admission, will be submitted to the CVM’s deliberative body, which will decide on the issuance of the required authorizations. The temporary authorizations will include the description of the authorized activity and the regulatory exemptions, the conditions, limits and safeguards associated with the exercise of the activity, in addition to the commencement date and term of validity, which may be of up to one (1) year, extendable only once for an equal period. With the granting of temporary authorizations, the activities will become monitored by the Sandbox Committee, and the participant undertakes the obligations, among others, to grant access to relevant information, documents and other materials related to the business and to communicate the materialization of foreseen and unforeseen risks during the development of the activities, for example.

It should be emphasized that the CVM’s deliberative body has the prerogative to, at any time, suspend or cancel the temporary authorization in case of verification of serious operational failure in the implementation of the innovative business model or if it is understood that the developed activity generates excessive risks, in addition to other situations provided for in ICVM No. 626.

If this is not the case, the participation in the Sandbox will cease: (i) upon expiration of the participation period; (ii) by request of the participant; or (iii) upon obtaining a definitive registration with the CVM to develop the respective regulated activity, with the guidance of the Sandbox Committee in the formulation of the application for registration and any requests for waiver of regulatory requirements with the CVM Superintendence responsible for granting the registration.

The Sandbox is therefore a significant initiative in fostering innovation in the Brazilian capital market, accommodating flexibility and regulation by being aware of the fast growth of fintechs without saturating them with rules, but, at the same time, without compromising the security of the market.