Brazil’s Reserve Bank Introduces Regulatory Sandbox Program to Support Financial and Payment Innovations

Brazil’s National Monetary Council (CMN), which is responsible for establishing monetary and credit policies, will be working with Banco Central do Brasil (BCB), the nation’s reserve bank, in order to create guidelines for managing the operation of the “Controlled Tests Environment for Financial and Payment Innovations” (basically a regulatory sandbox or testing environment for new Fintech solutions).

The financial regulations also offer guidelines for the conditions for the supply of products and services that are being tested under this environment’s framework. This reportedly falls within the scope of the National Financial System (SFN) and the Brazilian Payment System (SPB).

The regulations will aim to preserve the security and efficiency within Brazil’s local financial and payment ecosystems. The regulatory sandbox will focus on supporting the entry of new and innovative business models. It will also promote competition, enable greater financial inclusion, and focus on improving the BCB’s existing supervision processes and guidelines.

The regulatory sandbox serves as an environment that allows different entities from the financial or payment sectors to test out their products before they’re approved and licensed by Brazil’s regulators.

A Fintech solution may qualify as an “innovative” project if it can effectively use technological innovation to provide (potentially) beneficial products and services. These new sandbox projects must be able to deliver significant improvements to Brazil’s financial sector, such as lowering operational costs and enhancing the overall efficiency of financial services.

Companies or financial service providers may receive approval or permission to operate within the BCB’s regulatory sandbox environment so that they can conduct their transactions with integrity, reliability, security, and confidentiality. All new products and services have to comply with the appropriate regulations which aim to prevent money laundering and also focus on combatting terrorism financing (and other illicit activities).

The service providers that are testing their financial products are required to inform their customers that their company services are currently part of Brazil’s sandbox program (and may not yet be ready for the production or large-scale commercial use).

Brazil’s regulatory sandbox program will be operated through different cycles, whose lengths will be determined by the nation’s reserve bank. Most projects will be limited to one year. There’s also a possibility that some initiatives may receive an extension if required.

The first sandbox program cycle is expected to begin next year. BCB’s approval to take part in the regulatory sandbox does not guarantee that the participants will receive a license from the central bank to offer financial products in the future.

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