Put Andre Jerusalem  – 08/06/2020

 On June 1, 2020, CVM Instruction 626 came into effect (“ICVM 626”), published on May 15, 2020, which regulates the constitution and operation of the regulatory sandbox. The name arouses curiosity, and in fact, this standard is innovative in Brazil because it aims to foster entrepreneurship and the development of the capital market through the creation of an experimental regulatory environment, in which participating entities can test innovative business models, which do not have their own standard, in activities regulated by the CVM.

Under the CVM, participants admitted to the sandbox will receive temporary authorization to develop their innovative business models and may receive exemptions from regulatory requirements to reduce the burden of compliance with the current rules established by the Agency. In this sense, the president of the CVM, Marcelo Barbosa, stated that “The sandbox has proven to be an adequate mechanism for fostering innovation and competition in regulated markets, as seen in international experience. We hope that in Brazil, too, the sandbox will attract companies that, based on new technologies or the innovative use of existing technologies, produce positive results for users of capital market products and services, with gains for the entire market environment”.

However, these “regulatory sandboxes” are not new or exotic concepts. In 2015 the FCA (Financial Conduct Authority – financial services regulatory body) innovated by creating the first formal regulatory sandbox rule, defined as “a 'safe space' in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question”[1].

It is important to mention that Sandbox has already been the target of much criticism and reservations.[2] We must closely monitor the development of this new scenario in Brazil, working to increase innovation and competitiveness among companies, but also to prevent such innovations from becoming harmful to the market, customers and other interested parties.

[1] https://www.fca.org.uk/publication/research/regulatory-sandbox.pdf

[2] In this sense, Superintendent Maria T. Vullo of the New York State Department of Financial Services (DFS-NY) stated in July 2018 that “Toddlers play in sandboxes. Adults play by the rules”.