Published today (15/05), CVM Instruction 626, Regulates the constitution and operation of the regulatory sandbox and goes into effect from next month.

The Instruction authorizes legal entities to test innovative business models in activities in the securities market regulated by the Securities and Exchange Commission.

An isolated testing environment

The term sandbox came from the technology universe, which, to test a program, creates an isolated environment, so the rest of the software would not be affected by any problems during the testing phase.

Bringing it to the legal world, this idea was used to experiment and observe innovative environments, such as the cryptocurrency market, where current legislation fails to properly regulate.

This does not mean that innovative businesses are free from any regulation, the regulatory sandbox imposes rules that limit numbers of customers and maximum volume of operations, for example.

One of the purposes of the sandbox is to “guide participants on regulatory issues during the development of activities to increase legal certainty“.

According to Antonio Berwanger, market development superintendent “CVM's regulatory sandbox has improved with the contributions of several participants in a 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."

What has changed so far in the regulatory Sandbox

According to a CVM publication, some of the main changes in relation to the first wording placed in public hearing were:

  • 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.
  • 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.

Basically, after the established period, regulatory bodies, such as the Securities and Exchange Commission and the Central Bank of Brazil, will understand more deeply about disruptive technologies and will make their decisions based on that.

Through the Sandbox Committee, the CVM must periodically make available information regarding the progress of the regulatory sandbox. The new Instruction is part of the CVM Regulatory Agenda 2020.


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