Regulatory turmoil in the financial sector
The Brazilian financial sector has been going through a busy period from a regulatory perspective. Among other proposals currently on the table, the Central Bank of Brazil has expressed its intention to implement a new regulatory model for innovation, known as "sandbox", and is also considering the adoption of policies to regulate open banking. Both measures aim to boost competition and develop the sector.
On June 13, the Special Finance Secretariat of the Ministry of Economy announced, together with the Central Bank, the Securities and Exchange Commission (CVM), and the Superintendence of Private Insurance (Susep), the intention of adopting the “sandbox model”. The term, borrowed from computer language, refers to a type of regulation that seeks to create a legal environment capable of reconciling the flexibility needed to develop disruptive technologies with the indispensable guarantee of safety and measures against systemic risk.
More specifically, it aims to promote controlled flexibility so that new emerging configurations of services and products offered in the financial, security and capital markets remain in line with the regulatory rules of each segment, regardless of their form. As a concrete example, the announcement refers to the possibility of granting temporary authorizations as well as exceptionally and justifiably exempting the compliance of certain rules for specific regulated activities, if the pre-established material and temporal limits are observed. The initiative is part of a broader context of fostering competition by reducing regulatory barriers that hinder the entry of new players.
With the implementation of this measure — already adopted in jurisdictions such as the UK — the use of technologies such as distributed ledger technology (DLT), blockchain, roboadvisors and artificial intelligence are expected to grow in these markets. The ultimate intention is to ensure regulators will simultaneously guarantee freedom for the development of these innovations and closely monitor their externalities, envisioning better ways to regulate them in the long-term.
Regarding the second project, the Central Bank has announced that it will release to public consultation a proposal for regulation of open banking in the second half of this year. Open banking relates to the implementation of a technological system in which financial data — such as registration information, bank extracts and financial products — can be accessed by third parties, provided that there is consent by the data holder. It is therefore established that financial data belongs to customers, not to the financial institutions to which they are linked to.
In this sense, once authorized by the account holder, the institutions will be able to share data of products and services among themselves, based on the integration of platforms and technological infrastructures. The Central Bank expects that, with greater access to data, market agents will be able to offer more product and service alternatives, intensifying the competition and stimulating innovation. The integration of platforms is also relevant for facilitating data and customer portability.
Although some details have already been released by the regulator, there are many doubts and obstacles on the way. The main challenges posed are bank secrecy and guaranteeing the security of the information, as well as compliance with the provisions of the Brazilian General Data Protection Law (LGPD, Law 13709/2018).