CVM starts admission process for participants in the regulatory sandbox

Process of admission of participants to the regulatory sandbox

In November 2020, the Brazilian Securities and Exchange Commission (CVM) announced the start of the process of admitting participants to the regulatory sandbox, whose main objective is to stimulate competitiveness and innovation. Up to seven participants will be selected, who must submit their proposals between 11/16/2020 and 01/15/2020, with an estimated start of participation in May 2021.

The regulatory sandbox is an experimental environment in which participating companies may receive temporary authorizations, granted for a period of up to 1 year, renewable for up to 1 year, to test innovative business models in activities in the securities market regulated by the CVM. In other words, during this period, regulatory requirements will be waived through the prior establishment of conditions, limits and safeguards aimed at protecting investors and the smooth functioning of the securities market.

The initiative’s objectives include: fostering innovation in the capital market; guidance on regulatory issues to increase legal certainty; reduction of costs and time for the development of innovative solutions; increasing competitiveness; financial inclusion resulting from the launch of more accessible products and services; and improving the regulatory framework.

Normative Instruction / CVM No. 626/2020 presents the eligibility criteria for the process of admitting participants in the regulatory sandbox. First, regulated activity must fit into the concept of an innovative business model. To do so, you must use innovative technology, or make innovative use of technology. The development of a product or service that is not yet offered or made available with an arrangement different from what is being offered in the securities market is also allowed.

As for the business model, the potential for promoting efficiency gains, reducing costs or expanding public access to products and services is stipulated. It also fixes the need for prior validation through proofs of concept or prototypes, prohibiting the participation of business models in a purely conceptual stage of development.

The proponent must demonstrate technical and financial capacity at levels sufficient to develop the intended activity in the regulatory sandbox, as well as to establish protection mechanisms against cyber attacks and improper logical access in its systems; production and record keeping, including to support audits and inspections; and preventing money laundering and terrorist financing.

In addition, compliance requirements are indicated for the proposing company in relation to contracting with official financial institutions and participation in tenders and for the proposer’s administrators and direct or indirect controlling partners, regarding the exercise of management, of positions in financial institutions. , access to public office and criminal convictions.

The Sandbox Committee will evaluate the proposals received in a timely manner supported by criteria, such as: presence and relevance of technological innovation in the model; stage of business development, favoring activities in operation or ready to go into operation; magnitude of expected benefits; impact or contribution to the market; potential for financial inclusion; risk identification and mitigation; and contingency plan for orderly discontinuation of the activity.

By: Wilson Sales Belchior