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The Brazilian Securities and Exchange Commission (CVM) published on May 15, 2020 CVM Instruction 626, which regulates the constitution and operation of the regulatory sandbox, coming into force on June 1, 2020. The initiative aims to foster entrepreneurship and the development of the Brazilian capital market through the creation of an experimental regulatory environment, in which participating entities can test innovative business models in activities regulated by the CVM.

The regulation came out with some changes in relation to the draft put in public consultation last year. One of them was the replacement of the dynamics of sandbox cycles by participant admission processes, so that it is not necessary to completely terminate a cycle before new participants can join it. In this way, the process becomes more dynamic and continuous.

The admission process will begin with a communication from CVM to the market that will indicate the parameters and schedules for companies to apply. This process will be conducted by the Sandbox Committee, whose members will still be defined. The approved proposals will be sent to the CVM Collegiate for analysis and granting of the respective authorizations.

Although the information provided may be shared by third parties, the definitive regulation has brought the possibility for tenderers to indicate some information as confidential, provided that it is justified. This represents a major advance, as many companies feared the sharing of sensitive information.

Regulatory sandbox monitoring will be done by the Sandbox Committee. Companies may, throughout the process, request the extension or modification of the exemptions granted or revision of the conditions, limits and safeguards established. A section on the CVM page will show the progress of the sandbox.

Another significant change was the need for foreign individuals who want to apply for the special regime to partner with the regulatory bodies of the jurisdictions in which they are located. In addition, these candidates will be evaluated under the same criteria as the Brazilian proponents.

Regulatory sandbox will enable innovative business models

Government entities that proposed the creation of a regulatory sandbox justify the measure by directly citing the use of innovative technologies such as distributed ledger technology (DLT), blockchain, among others. According to the institutions, these technologies have allowed new business models, reflecting the offer of products and services of higher quality and reach.

It is known that laws cannot keep up with the same pace of innovation, and that is why legislators in several countries face the same challenge: updating existing standards to give legal certainty to new factual realities created by innovation, or waiting and letting the market experience these new technologies based on the existing legal framework.

Certainly it is not an easy task. Faced with this dilemma, the regulatory model of sandbox has been gaining strength around the world, because it allows the regulator to act with some flexibility in granting rights and distribution of duties, while granting the dreamed legal certainty to entrepreneurs and investors. Thus, they justify, the regulated activities remain appropriate to the rules of each segment, especially with regards to legal certainty and protection of clients and investors.

Why a regulatory sandbox in Brazil is great news

The issue of the norm by the Brazilian Securities and Exchange Commission comes at a good time for the Brazilian market, because it serves as a stimulus for the emergence of innovative and disruptive initiatives in much needed times. The Brazilian authorities had already signaled in 2018 that a regulatory model of sandbox was being studied and therefore, the joint communiqué confirms the initiative.


 The term sandbox is used in computer science when it is intended to isolate the execution of a particular program or software in a testing environment, in a virtual ecosystem, delimited and neutral. In this way, you can test the initiative in a closed environment to protect the rest of your computer’s operating system. That is, the sandbox is an effective way to test new microsystems without compromising the system as a whole.

The regulatory sandbox is a concept, adopted in countries such as the UK, where, for a limited period of time, existing regulatory standards are relaxed to allow technology companies such as fintechs to develop without flouting legal rules. In practice, this period of simpler rules act as a “push” for the initial development of companies.

There are many benefits that can be verified in a Brazilian sandbox, and we can highlight the following:

 (a) the approximation and greater interaction between the regulatory body and the fintechs of the sector, thus allowing a better understanding of the market and ensuring that appropriate consumer protections are incorporated into new products and services;

 (b) allowing more products to be tested in advance and thus ensuring that products are made available to the market in regulatory compliance;

 (c) reducing the time and potentially the cost of putting innovative ideas on the market with legal certainty;

(d) enabling greater access to finance for genuinely innovative projects, since it would be eliminating the legal and regulatory uncertainty of some projects, thus attracting more investors to support the projects.

Regime is successfully used in other countries

The sandbox has been used with increasing frequency in other countries, especially in Anglo-Saxons ones. In the UK, for example, the sandbox regulatory regime was officially launched in June 2016. This new regime led to the creation of environments for the establishment of tests of new products, without the risk of being punished by the regulator, one of the biggest concerns of the entrepreneur and also of the project investors.

However, this regulatory benefit is not granted for any enterprise and some eligibility criteria are required of the entrepreneur so that he can benefit from this legal testing environment. The FCA – Financial Conduct Authority, UK regulator, for example, requires compliance with certain requirements, which are:

(i) the product or service to be tested represents true innovation;

 (ii) consumers will benefit from the innovative service/product;

(iii) the entrepreneur shall establish appropriate safeguards for the safe management of risks and protection of consumers.

It is also important to note that the regulatory sandbox in the UK and most countries where this model is adopted, such as Malaysia, Singapore and Australia, is not approved indefinitely. Entrepreneurs should establish a schedule for implementing testing and launching the projects definitively to the market outside the sandbox environment.

With the publication of the instruction regulating the Brazilian regulatory sandbox, Brazil is aligned with the best practices of global regulators in order to allow and encourage innovation in the capital market. We are convinced that this initiative will definitely contribute to the entry of technologies such as blockchain, artificial intelligence and big data in the securities market.