CVM launches rules for regulatory sandbox to deliver innovation in the Brazilian capital markets

May 15, 2020
Por
CVM
CVM
CVM
Comissão de Valores Mobiliários
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This new standard establishes and operates an experimental regulatory environment.

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The Securities and Exchange Commission (CVM) publishes today, 05/15/20, CVM Instruction 626, which regulates the constitution and operation of the regulatory sandbox.

The initiative aims to foster entrepreneurship and the development of the Brazilian capital market through the creation of an experimental regulatory environment, in which the participating entities can test innovative business models in activities regulated by the CVM.

"The sandbox proved to be an adequate mechanism for fostering innovation and competition in regulated markets, as can be seen in international experience. We hope that in Brazil, the sandbox also attracts companies that, based on new technologies or the innovative use of existing technologies , produce positive results for users of products and services in the capital market, with gains for the entire market environment ", said Marcelo Barbosa, president of CVM.

The participant admitted to the sandbox will receive temporary authorization to develop their innovative business model, and may receive exemptions from regulatory requirements to reduce the burden of compliance with current rules established by the Municipality.

On the other hand, conditions and limits to the participant's performance will be established, as well as safeguards to mitigate identified risks, in order to ensure the proper functioning of the market and to protect customers and other interested parties.

The participant will be continuously monitored by the CVM throughout the trajectory, providing mutual learning and opportunity for timely action by the regulator, if necessary.

Main expected benefits

  • Fostering innovation in the capital market.
  • Guidance to participants on regulatory issues during the development of activities to increase legal certainty.
  • Decreased cost and time to mature to develop innovative products, services and business models.
  • Increased visibility and traction of innovative business models, with possible positive impacts on their attractiveness to venture capital.
  • Increased competition between service providers and between suppliers of financial products in the capital market.
  • Financial inclusion due to the launch of less costly and more affordable financial products and services.
  • Improvement of the regulatory framework applicable to activities regulated by the CVM. 
“CVM's regulatory sandbox began to be designed at the LAB for Financial Innovation and improved with the contributions of several participants in the public hearing. CVM Instruction 626 marks the beginning of a new stage in the development of the Brazilian capital market, in which the CVM will have tools to enable and foster innovative business models in activities regulated by the Autarchy. We hope to start, soon, the first process of admission of participants. ”- Antonio Berwanger, superintendent of market development (SDM).

 Main changes in relation to the Minute placed in public hearing:

  • Promoting efficiency gains, reducing costs or expanding access by the general public to products and services in the securities market is no longer an autonomous criterion to characterize an innovative business model and becomes a requirement, both in cases of technological and market innovation.
  • Requirement that the innovative business model has been preliminarily validated through, for example, proof of concept or prototypes, and cannot be in a purely conceptual stage of development.
  • Replacing the dynamics of sandbox cycles with participant admission processes, so that it is not necessary to completely end a cycle before new participants can join the sandbox.
  • Inclusion of a preliminary sanitizing analysis phase of the proposals received to identify any formal defects, giving the proponent the opportunity to present new information or clarifications.
  • Forecasting the participation of foreign legal entities is no longer necessary to establish a partnership with competent regulatory authorities of the jurisdictions in which they are based, and foreign candidates will be evaluated according to the same eligibility, selection and prioritization criteria valid for Brazilian applicants.
  • Addition of devices designed to ensure the preservation of the confidentiality of the information contained in the participation proposals that are indicated as confidential.
  • Receipt and analysis of proposals arising from admission processes from other regulatory bodies, even though the deadline set by the CVM for registration has already ended.
  • Possibility of submitting a reasoned request, during the period of participation, expanding or changing the granted exemptions, or reviewing the conditions, limits and safeguards established.
  • Adjustment in the scope and content of the participant's communication requirements with his clients, both in the disclosure materials and in the risk science term.
  • Creation of a section on the CVM page dedicated to the periodic disclosure of information regarding the progress of the regulatory sandbox, such as a description of the innovative business models being tested, frequently asked questions and statistics on proposals received, approved and rejected.

Attention

CVM Instruction 626 takes effect on 6/1/2020.

Las opiniones compartidas y expresadas por los analistas son libres e independientes, y de ellas son responsables sus autores. No reflejan ni comprometen el pensamiento u opinión de Latam Fintech Hub, por lo cual no pueden ser interpretadas como recomendaciones emitidas por la platafomra. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista sobre el ecosistema Fintech.

The Securities and Exchange Commission (CVM) publishes today, 05/15/20, CVM Instruction 626, which regulates the constitution and operation of the regulatory sandbox.

The initiative aims to foster entrepreneurship and the development of the Brazilian capital market through the creation of an experimental regulatory environment, in which the participating entities can test innovative business models in activities regulated by the CVM.

"The sandbox proved to be an adequate mechanism for fostering innovation and competition in regulated markets, as can be seen in international experience. We hope that in Brazil, the sandbox also attracts companies that, based on new technologies or the innovative use of existing technologies , produce positive results for users of products and services in the capital market, with gains for the entire market environment ", said Marcelo Barbosa, president of CVM.

The participant admitted to the sandbox will receive temporary authorization to develop their innovative business model, and may receive exemptions from regulatory requirements to reduce the burden of compliance with current rules established by the Municipality.

On the other hand, conditions and limits to the participant's performance will be established, as well as safeguards to mitigate identified risks, in order to ensure the proper functioning of the market and to protect customers and other interested parties.

The participant will be continuously monitored by the CVM throughout the trajectory, providing mutual learning and opportunity for timely action by the regulator, if necessary.

Main expected benefits

  • Fostering innovation in the capital market.
  • Guidance to participants on regulatory issues during the development of activities to increase legal certainty.
  • Decreased cost and time to mature to develop innovative products, services and business models.
  • Increased visibility and traction of innovative business models, with possible positive impacts on their attractiveness to venture capital.
  • Increased competition between service providers and between suppliers of financial products in the capital market.
  • Financial inclusion due to the launch of less costly and more affordable financial products and services.
  • Improvement of the regulatory framework applicable to activities regulated by the CVM. 
“CVM's regulatory sandbox began to be designed at the LAB for Financial Innovation and improved with the contributions of several participants in the public hearing. CVM Instruction 626 marks the beginning of a new stage in the development of the Brazilian capital market, in which the CVM will have tools to enable and foster innovative business models in activities regulated by the Autarchy. We hope to start, soon, the first process of admission of participants. ”- Antonio Berwanger, superintendent of market development (SDM).

 Main changes in relation to the Minute placed in public hearing:

  • Promoting efficiency gains, reducing costs or expanding access by the general public to products and services in the securities market is no longer an autonomous criterion to characterize an innovative business model and becomes a requirement, both in cases of technological and market innovation.
  • Requirement that the innovative business model has been preliminarily validated through, for example, proof of concept or prototypes, and cannot be in a purely conceptual stage of development.
  • Replacing the dynamics of sandbox cycles with participant admission processes, so that it is not necessary to completely end a cycle before new participants can join the sandbox.
  • Inclusion of a preliminary sanitizing analysis phase of the proposals received to identify any formal defects, giving the proponent the opportunity to present new information or clarifications.
  • Forecasting the participation of foreign legal entities is no longer necessary to establish a partnership with competent regulatory authorities of the jurisdictions in which they are based, and foreign candidates will be evaluated according to the same eligibility, selection and prioritization criteria valid for Brazilian applicants.
  • Addition of devices designed to ensure the preservation of the confidentiality of the information contained in the participation proposals that are indicated as confidential.
  • Receipt and analysis of proposals arising from admission processes from other regulatory bodies, even though the deadline set by the CVM for registration has already ended.
  • Possibility of submitting a reasoned request, during the period of participation, expanding or changing the granted exemptions, or reviewing the conditions, limits and safeguards established.
  • Adjustment in the scope and content of the participant's communication requirements with his clients, both in the disclosure materials and in the risk science term.
  • Creation of a section on the CVM page dedicated to the periodic disclosure of information regarding the progress of the regulatory sandbox, such as a description of the innovative business models being tested, frequently asked questions and statistics on proposals received, approved and rejected.

Attention

CVM Instruction 626 takes effect on 6/1/2020.

Las opiniones compartidas y expresadas por los analistas son libres e independientes, y solamente sus autores son responsables de ellas. No reflejan ni comprometen el pensamiento o la opinión del equipo de Latam Fintech Hub y, por lo tanto, no pueden interpretarse como recomendaciones emitidas por la plataforma. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista en el ecosistema Fintech.
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