2021: the year of regulatory sandboxes in Brazil
The regulatory sandbox promises to stimulate innovation in the financial market. In Brazil, two companies have already received authorization to offer new insurance products in Susep's controlled experimental environment.
In 2021 the Regulatory Sandbox projects start operating in Brazil, with two fintechs already authorized to launch experiments in the insurance area – Pier and Stone.
This is an initiative coordinated by the three financial regulators in the country – the Central Bank of Brazil (BCB), the Securities and Exchange Commission (CVM), and the Superintendence of Private Insurance (Susep) – which together aim to encourage innovation projects in the financial market.
By participating in the regulatory sandbox, selected fintechs receive a special temporary permission to test new solutions in a secure and controlled environment. Examples of new technologies that can be tested are the use of distributed ledger technologies (DLT) for blockchain-like transaction recording, artificial intelligence, and data analytics.
The first regulatory sandbox experiment was conducted by the Financial Conduct Authority in the UK, but similar initiatives are being undertaken in several countries with the goal of designing regulatory regimes suitable for the current reality of intense digital transformation in finance and payments. By launching the three regulatory sandbox initiatives for fintechs, Brazil joins a list of more than 50 countries that have announced similar measures.
In an interview for Instituto Propague in April 2020, attorney Eduardo Bruzzi said that Brazil is a good international example for institutional coordination. The traditional division of competencies between different regulatory agencies is challenged by increasingly intertwining activities in the account, payment, credit, investment and insurance markets, with diverse agents taking part in several of these segments.
The lack of coordination between the different agencies that regulate aspects of the financial and insurance sectors can hinder the success of a sandbox, as it might create imbalances between one group of market players compared to others that do not respond to the same regulatory body. For this reason, the coordinated initiative between Susep, CVM and BCB is relevant.
Insurtech pioneers the Brazilian regulatory sandbox
The insurtech market – a term that comes from the union of insurance + technology – will be the first to feel the effects, with the beginning of Susep’s sandbox. The innovations in the insurance market involve the use of technology for the development of new products, such as intermittent and parametric insurance, or new processes, especially focused on the user experience in the contracting and enjoyment of insurance products.
Insurtechs are also setting a new ground by offering protection for assets that are not usually served by the conventional insurance market, such as insurance for cell phones, laptops, and other portable devices, or life insurance for pets.
The projects approved by Susep cover all these modalities. Besides Pier and Stone, nine other companies have been approved and are awaiting authorization to launch their innovative projects. They will have 36 months to implement the new solutions under the regulator’s constant monitoring.
The other two programs for the capital market (regulated by the CVM) and the banking and payments sector (regulated by the Central Bank) should start operating by the half of 2021. CVM began the process of evaluating the applications on January 18 this year, while the Central Bank will receive the applications between February 22 and March 19 and will report the results by June 2021.
The offer of experimental services via sandboxes will dialogue with the data sharing in open banking, which also begins in 2021. Solutions for Pix and Open Banking are among the priorities listed by the Central Bank in its Sandbox Rules. However, the more advanced phases of customer data sharing and payment initiation under Open Banking will only start in the second half of the year.