In Brazil, the main laws governing the banking sector are the following, as amended:
In addition, there are other laws applicable to the banking sector, among which we highlight the following:
Under the terms of the Brazilian Banking Law, financial institutions are “public or private legal entities whose main or ancillary activity is the collection, intermediation or application of their own or third-party funds, in local or foreign currency, and the custody of third-party funds”.
In this context, the Brazilian Banking Law and the Brazilian Capital Market Law granted powers to CMN and BCB to act as the main regulators in charge of the banking sector, provided that CMN undertakes a general regulatory role, while BCB is in charge of regulating specific aspects and supervising compliance with the regulation.
Considering the above, CMN and BCB have enacted a comprehensive and extensive regulation of the financial sector during the past decades. Amongst such regulation, the following should be highlighted:
Furthermore, CMN and BCB have enacted extensive regulation regarding other matters, including regulation on internal controls, ombudsman, cybersecurity, internal and independent audits, risk management, frauds prevention, customer service support and accounting.
According to Brazilian Banking Law, financial institutions are subject to prior authorisation from BCB in order to be able to operate. This authorisation involves specific procedures and compliance with certain requirements depending on the type of activity to be performed.
It should be noted that performance of activities that are the sole domain of financial institutions without the prior authorisation by BCB is a crime under Law No 7,492/86.
Types of Licence
In general terms, entities that wish to provide financial services may apply for the following types of licence:
Additionally, there are certain types of non-banking financial institutions in Brazil, such as credit, financing and investment companies, real estate credit companies and mortgage companies, credit unions, micro entrepreneur and small business credit companies, direct credit society (SCD) and peer-to-peer lending company (SEP).
Any Restrictions on Licensed Banks’ Activities
As a general note, the activities performed by financial institutions are subject to extensive regulation and, thus, are subject to a series of restrictions regarding their operational procedures and business.
In this context, Law No 13,506/17 provides certain restrictions on licensed banks’ activities, highlighting the following:
Statutory or Other Conditions for Authorisation
In addition to the unblemished reputation requirement, Resolution CMN No 4,122/12 (which will be revoked and superseded by Resolution CMN No 4,970/21 on 1 July 2022) and Circular BCB No 3,649/13 also require the provision of the following documents and information:
Process for Applying for Authorisation
As a general rule, BCB has 12 months to authorise a bank to operate. The deadline starts from the date when the application is filed with BCB.
Pursuant to Resolution CMN No 4,122/12 (which will be revoked and superseded by Resolution CMN No 4,970/21 on 1 July 2022) and Circular BCB No 3,649/13, the authorisation process encompasses the following phases:
The acquisition and transfer of equity in banks in Brazil are subject to the following requirements set forth by Resolution CMN No 4,122/12 (which will be revoked and superseded by Resolution CMN No 4,970/21 on 1 July 2022), Circular BCB No 3,649/13 and Resolution BCB No 23/20:
Pursuant to Resolution CMN No 4,122/12 (which will be revoked and superseded by Resolution CMN No 4,970/21 on 1 July 2022), controlling group is defined as the owner(s) of the majority of the voting capital in corporations or the owner(s) of, at least, 75% of the corporate capital in limited liability companies.
Additionally, the regulation limits the types of entities that may be controlling shareholders of a financial institution, as follows:
The foreign investment in banks in Brazil has recently changed with the enactment of Decree No 9,544/18, Decree No 10,029/19 and specific regulation by the BCB, aiming at reducing bureaucracy, speeding up the authorisation proceeding and stimulating the participation of new players in the financial market.
Before such decrees and regulation were enacted, any increase of foreign participation in financial institutions in Brazil required a manifestation of express interest by the Brazilian federal government and publication of a specific Presidential Decree in this regard. Currently, foreign investors are subject to the same rules mentioned above, which are applicable both to foreign and local investors interested in acquiring an equity stake at a local financial institution.
Banks and Boards of Directors
According to Brazilian laws, as a general rule, it is not mandatory for banks to have a board of directors (conselho de administração) or a permanent board of auditors (conselho fiscal). In case the bank does not have a board of directors, certain responsibilities will fall to the board of officers (eg, approval of specific policies and reports mandated by the regulation).
If the institution has a board of directors, Law No 6,404/76 (the Brazilian Corporations Law) sets forth that the board must have, at least, three members with terms of office lasting up to three years. Regarding the board of auditors, it must have at least three and no more than five members, with terms of office lasting until the following ordinary shareholders’ meeting.
When it comes to committees, certain banks must have:
Internal Controls Imposed on Banks
Notwithstanding the obligatory committees mentioned above, BCB imposes certain obligations to banks regarding internal controls, internal audit and ombudsman office, which may be performed by independent committees or units. According to Resolution CMN No 2,554/98, banks must implement internal controls structures in order to, among others, segregate the activities assigned to members of the institution so that conflicts of interest are avoided, as well as to adequately monitor areas identified as having potential conflicts of interest.
Furthermore, pursuant to Resolution CMN No 4,879/20, banks must implement and maintain an internal audit activity, which must be continuous, effective and independent of the audited activities, as well as be performed by a specific unit of the institution.
Additionally, financial institutions must incorporate an ombudsman office, under the terms of Resolution CMN No 4,860/20, which cannot be linked to an organisational component of the institution that represents a conflict of interest or of attributions (eg, internal audit and compliance). The bylaws of the financial institution must expressly provide on certain aspects of the ombudsman office (eg, its purpose, activities and attributions).
Corporate Governance in Banks
The Brazilian Federation of Banks (Febraban) and the Brazilian Institute of Corporate Governance (IBGC) have enacted non-binding guidelines to corporate governance in banks. Febraban has edited in 2018 a compliance guide, which establishes:
For information on IBGC’s code, see 4.2 Registration and Oversight of Senior Management.
In Brazil, the shareholders’ meeting is the corporate body in charge of appointing the directors of a bank or, in the absence of a board of directors, of appointing the officers. Brazilian Banking Law grants the CMN the power to set forth the conditions for appointing and exercising top management positions in banks.
In view of this, Resolution CMN No 4,122/12 (which will be revoked and superseded by Resolution CMN No 4,970/21 on 1 July 2022) sets forth the conditions to the exercise of statutory or contractual positions in banks. The BCB has to approve the appointment of statutory or contractual managers, which must comply with certain requirements, among which we highlight the following:
Compliance with the requirements above must be disclosed in the authorisation proceeding and/or during changes and appointments of managers. Notwithstanding the requirements above, members of the board of auditors, audit and remuneration committees must comply with additional specific requirements, depending on the case.
The officers must be responsible before the BCB for compliance with determined regulatory obligations, including the filing of periodic reports (eg, compliance and reports related to cybersecurity, ombudsman and accounting matters). These obligations are additional to ordinary management functions and cumulation of activities by a given officer should only occur if there is no conflict of interests.
Additionally, IBGC has edited a voluntary code in 2016 called Manual of Juridical-Regulatory Orientation for Financial Institution Managers, which covers the following topics:
Notwithstanding the foregoing, the BCB may determine the removal of members of statutory or contractual bodies with a term of office in effect if, at any time, circumstances are found that are pre-existing or subsequent to their election or appointment that characterize non-compliance with the conditions listed above.
Additionally, pursuant to Brazilian Banking Law, Law No 13,506/17 and Resolution BCB No 131/21, the BCB is responsible for supervising financial institutions. Any violations of the regulations may lead to the imposition of administrative sanctions, after an administrative sanctioning proceeding has been concluded.
As a consequence, the members of the executive board, board of directors, board of auditors, audit committee and other statutory bodies of banks are subject to administrative sanctions, pursuant to applicable regulations.
In general, the applicable sanctions vary according to the infraction committed. Under Law No 13,506/17, the main penalties applicable by the BCB to managers of banks may involve, separately or cumulatively:
Pursuant to Resolution CMN No 3,921/10, banks must implement a remuneration policy for its administration, which shall be compatible with the risk management policy and should not encourage behaviour that increases risk exposure above recommended levels. The remuneration committee, as applicable, and/or, in the last instance, the board of directors, is responsible for supervising the planning, implementation, controlling and reviewing this policy.
With respect to the variable remuneration, the institutions must take into consideration, with regard to the overall amount and allocation of the remuneration, certain factors, such as:
Among the criteria to pay variable remuneration to managers, it is necessary, at least, to analyse:
There is no specific consequence provided by BCB’s rules regarding the breach of the remuneration requirements mentioned above. However, Resolution CMN No 3,921/10 sets forth that BCB is authorised to adopt necessary measures to ensure compliance with the referred Resolution. In this scenario, the regulator may commence an administrative proceeding against the institution and its managers, based on general breach of regulation, under Law No 13,506/18 (see 4.2 Registration and Oversight of Senior Management).
As a final note, due to the impacts of the COVID-19 pandemic, the BCB has imposed certain temporary restrictions regarding remuneration of bank managers. In this sense, Resolution CMN No 4,820/20 expressly prohibited banks from increasing the fixed or variable remuneration of officers, managers, directors or members of the audit committee. This resolution is still in force at time of writing.
In Brazil, Law No 9,613/20 is the main law governing AML/CTF obligations. The provisions of the law are broad and require specific regulation in order to enable compliance by regulated entities. Therefore, the BCB has enacted Circular No 3,978/20 to regulate, in detail, the AML/CTF obligations applicable to financial institutions.
Thus, Law No 9,613/20 and Circular BCB No 3,978/20 establish that financial institutions must implement an AML/CTF governance structure using a risk-based approach. This structure must be compatible with the risk profiles of the:
Furthermore, the AML/CTF governance structure for financial institutions must include the:
Risk Profile and Risk Assessment
KYC procedures must be compatible with the client’s risk profile, the AML/CTF policy and the internal risk assessment of the institution. The regulation mandates implementation of KYC in three stages:
The report of suspicious transactions and situations is mandatory and must be made to the Financial Activities Control Board (Coaf). In that sense, there are specific transactions that are considered potentially suspicious and must be reported independently of the institution's internal risk assessment, while there are other situations that require an internal assessment in order to determine if the transaction should be reported or not.
Without prejudice to the above, there are other laws and regulations that are complementary to the main AML/CTF obligations, such as:
In Brazil, the depositors are protected by guarantee funds, private, non-profit associations which purpose is to protect depositors of member institutions (as detailed below), contributing to the maintenance of financial stability and preventing systemic crises.
In the event of a decree of intervention or extrajudicial liquidation, depositors are guaranteed receipt of the deposited amount, subject to the limits and guaranteed financial instruments, in accordance with the regulations of the respective guarantee fund.
In Brazil there are two main guarantee funds, the credit guarantee fund (FGC) and credit co-operative guarantee Fund (FGCoop).
Credit Guarantee Fund (FGC)
The FGC is a non-profit civil association with the purpose of protecting depositors and investors of the associated institutions.
FGC is not managed by CMN or BCB. However, under the terms of Resolution CMN No 2,197/95, the bylaws and regulations of FGC must be approved by the CMN. Resolution CMN No 4,222/13 sets forth the FGC Bylaws in Annex I and the FGC Regulation in Annex II.
Protection under the FGC is limited to certain deposits or investments in member institutions. Under the existing regulation, certain institutions are obliged to be members of the FGC, such as Caixa Econômica Federal, multiple banks, commercial banks, investment banks, development banks, credit, financing and investment companies, real estate credit companies, mortgage companies and associations of savings and loans, operating in the country, which:
Subject to the limits established by the FGC Regulation, the following depositor credits are guaranteed by FGC, on an ordinary basis, provided they are held with member institutions:
Pursuant to the FGC Regulation, the FGC guarantees the total credits of each person against:
Finally, pursuant to the regulation, the following are not covered by the ordinary guarantee:
Specific conditions apply to term deposits denominated "Term Deposits with Special Guarantee by the FGC (DPGE)".
Credit Co-operative Guarantee Fund (FGCoop)
The FGCoop is a non-profit civil association, with its own legal personality, under private law, nationwide, which allows the recovery of deposits or credits held in individual credit co-operatives and co-operative banks (Bancoob and Banco Sicredi), up to a certain amount, in the event of intervention or extrajudicial liquidation.
FGCoop functions in a similar way as the FGC, provided that the member institutions of the FGCoop are co-operative banks and individual deposit-taking credit co-operatives.
In Brazil, Complementary Law No 105/01 (the “Bank Secrecy Law”) sets forth the general bank secrecy requirements applicable to financial institutions. The Bank Secrecy Law establishes that, as a general rule, financial institutions must keep secrecy of its active and passive transactions and services provided to clients.
Under the following circumstances, financial institutions may disclose information that otherwise would be protected by banking secrecy obligations:
Financial institutions must disclose information originally protected by bank secrecy, when such disclosure is mandated by authorities with jurisdiction for the purpose of providing evidence of the occurrence of any illegal act, at any stage of the investigation or judicial process, and especially in the following crimes:
In addition, financial institutions cannot oppose the bank secrecy obligation to:
In that sense, the non-compliance with bank secrecy requirements, such as the breach of secrecy or the omission, unjustified delay or false provision of information required under the Brazilian Bank Secrecy Law, may result in criminal liability, without prejudice of the other applicable sanctions.
As a final note, financial institutions also have to comply with specific laws and regulations regarding privacy and information security in Brazil, including, but not limited to:
Generally speaking, prudential regulation aims to establish risk management requirements and minimum capital requirements for financial institutions based on their respective sizes. Prudential regulation aims to prevent risks arising from the activities performed by financial institutions, helping to ensure that any failure of a financial institution does not generate systemic risk in the financial system.
Prudential regulation is based on the premise that smaller institutions do not need to comply with the same rules as larger institutions, although they continue to safeguard prudential requirements. Thus, based on a specific regulatory framework, institutions must comply with certain regulations in order to prevent any failures that could generate risks to the entire SFN.
For purposes of the proportional application of prudential regulation, the CMN segmented, through Resolution CMN No 4,553/17, financial institutions and other institutions authorised to operate by BCB in the following way, considering the size and international activity of the institutions that constitute each segment:
Adherence to Basel III Standards
Brazil, as a member of the Basel Committee, has fulfilled its commitment to apply the Basel III standards to the SFN. Basel III is being implemented through regulations issued by CMN and BCB.
With regard to the proportionality in the prudential regulation applicable to each of the segments, we emphasize that larger institutions that are part of the S1 segment, are subject to full alignment with the Basel III standards, which represent the standards internationally adopted related to banking supervision.
On the other hand, the institutions that are part of Segment S5, for example, are subject to a simplified optional methodology for calculating the minimum prudential requirements and a simplified risk management structure.
Risk Management Rules
In general lines, Resolution CMN No 4,557/17 (which governs the risk management structure and the capital management structure) sets forth that institutions pertaining to S1, S2, S3 and S4 must implement:
Such risk management structures should be:
In its turn, institutions pertaining to S5 must implement a simplified framework for ongoing risk management, which is governed by Resolution CMN No 4,606/17.
Quantity and Quality of Capital Requirements
According to Resolution CMN No 2,099/94, among others, the following minimum limits for corporate capital are applicable:
It is important to notice that other types of financial institutions or institutions authorised by the BCB, such as mortgage companies, securities brokerage companies, broker dealer companies and exchange brokerage companies are subject to specific share capital limits.
Moreover, Brazilian banking regulation also sets forth requirements related to the quality and composition of capital, which must be observed by financial institutions.
In general lines, the Basel III standards advises the adoption of two different types of liquidity index:
The LCR was adopted in Brazil, with large institutions being required to maintain a daily ratio between liquid assets and obligations maturing in the subsequent 30 days equal to at least one. Resolution CMN No 4,401/15 imposed such a limit for financial institutions or conglomerates pertaining to S1 (as described above). The calculation of the LCR is provided by Circular BCB No 3,749/15, which divides the assets according to decreasing liquidity criteria. The standard provides for categories of assets used only partially for the calculation of the index, given their degree of relative liquidity, through the application of weighting factors (for example, certain bonds and stocks).
In its turn, with regard to the NSFR, Resolution CMN No 4,616/17 establishes that financial institutions pertaining to S1 must calculate the NSFR and permanently comply with the minimum limit established by the regulation.
Moreover, Resolution CMN No 4,557/17 Re determines that the liquidity risk management activity must be executed by a unit segregated from those responsible for business and internal audit, subject to an institution's responsible officer, who is in charge of monitoring, evaluating and managing risks.
Banks are subject to special regimes in situations that involve insolvency or other types of crises. The main special regimes are listed below:
Intervention and Extrajudicial Liquidation
Financial institutions are subject, under the terms of Law No. 6,024/74, to intervention or extrajudicial liquidation, in both cases performed and decreed by the BCB.
Intervention can occur in one of the following situations:
Extrajudicial liquidation may be decreed when:
In the intervention regime, which shall not exceed six months (extendable for another six months), the BCB appoints an intervenor with broad management powers (provided that certain acts must be previously approved by the BCB, such as hiring and firing of employees). The interventor must prepare a report to the BCB indicating the financial and economic situation of the institution and the damaging acts and omissions that were identified. The intervention ceases:
Similarly to intervention, in the extrajudicial liquidation, the BCB must appoint a liquidator with broad management and liquidation powers, including the powers to hire and fire employees (provided that certain acts must also be previously approved by the BCB, such as encumbering or selling assets by auction). The liquidator must prepare a report with the same terms applicable to the intervenor. The extrajudicial liquidation ceases by:
The term of office of managers, members of the board of auditors or any other bodies created by the institution's by-laws is suspended in case of intervention or terminated in case of extrajudicial liquidation.
Additionally, all assets pertaining to managers of institutions under intervention, extrajudicial liquidation or bankruptcy will become unavailable and such persons will not be able, by any means, directly or indirectly, to dispose of or encumber such assets, until their liabilities are determined and settled. The unavailability of assets may be extended to the:
The persons subject to unavailability of assets may not be absent from the venue of the intervention, extrajudicial liquidation or bankruptcy proceeding without prior and express authorisation from the BCB or the bankruptcy judge.
The institution's managers and members of the board of auditors shall be liable for their acts or omissions.
Furthermore, all managers are jointly liable for the obligations undertaken during their management until they are discharged.
As a final note, Law No 9,447/97 extended to the direct or indirect controlling shareholders of a financial institution subject to intervention, extrajudicial liquidation or RAET, the joint and several liability of controlling shareholders under Law-Decree No 2,321/87 and the unavailability of assets under Law No 6,02417 and Law-Decree No 2,321/87.
Special Temporary Administration Regime (RAET)
A RAET has the purpose of interrupting the ordinary management of a financial institution in the following events:
Decreeing a RAET does not affect the regular course of the institution's business or its normal operation and shall have, immediately, the effect of terminating the mandates of managers and fiscal auditors.
During a RAET, the BCB will appoint statutory members, establish attributions and practice intervention acts. All the provisions, remedies and liability-promoting measures applicable to managers in intervention and extrajudicial liquidation are applicable in case of a RAET as well.
Once a RAET is decreed, the individuals or legal entities that control the institution, regardless of intent or fault, are jointly liable with the former managers for the obligations undertaken by the latter. The joint liability resulting from the corporate control is limited to the amount of the institution's unsecured liabilities, assessed in a balance sheet that will have as its base date the day when a RAET was decreed.
FSB Key Attributes of Effective Resolution Regimes
As a final note, it is worth mentioning that BCB has sent in 2019 the Bill of Complementary Law No 281 (“Bill No 281/19”), which reflects the Financial Stability Board Key Attributes of Effective Resolution Regimes.
Bill No 281/19 aims to adopt the Key Attributes, seeking convergence to the international standard for resolution regimes, designed to provide national authorities with tools to resolve systemically relevant financial institutions in an orderly manner, without interrupting the provision of their critical functions to customers and the economy as a whole.
At the moment, Bill No 281/19 is still under analysis in the Chamber of Deputies.
In the past few years, the Brazilian financial industry has gone through substantial changes, including the promotion of several initiatives aimed at encouraging the entry of new participants in the market and also the development of instant payments (“Pix”) and open banking.
Additionally, the BCB has adopted standards that are usually in line with international regulatory frameworks implemented in well-developed jurisdictions (in particular the regulatory framework set forth by PSD2 in the European Union), as it can be noticed by the regulations governing open banking and Pix.
It is worth mentioning that the BCB has stated its purpose of promoting financial inclusion, competitiveness, transparency, financial education and sustainability in a public document entitled Agenda BC#, which focuses on resolving structural challenges of the SFN by, among other measures, fostering technological innovation in the local market.
In this sense, we have summarised below the main upcoming regulatory developments expected to have an impact on the Brazilian financial system, such as the full implementation of Pix, open banking and the Brazilian Central Bank Digital Currency (CBDC).
Instant Payments – Pix
Pix is the Brazilian instant payments payment scheme, launched on 16 November 2020. In its turn, instant payment is an electronic money transfer in which the transmission of the payment order and availability of funds to the receiving user takes place in real time and whose service is available 24 hours a day, seven days a week, every day of the year.
It is worth mentioning that BCB plays three important roles within Pix:
Pix aims to improve customer experience on carrying out payment orders, both as payor and as payee. From the point of view of payors, the regulator intends to let instant payments be as easy, simple and fast as making a cash payment. On the other hand, from payees’ perspective, the purpose is to reduce costs of offering payment methods, among others.
As a general rule, financial and payment institutions authorised by the BCB with more than 500,000 active client accounts (considering demand deposit accounts, savings deposit accounts and prepaid payment accounts) were obliged by the regulator to participate in the Pix payment scheme, offering the possibility of carrying out Pix transactions to their respective clients.
Despite its relatively recent launch, according to information provided by the BCB on 17 May 2021, more than 83 million individuals and more than 5.5 million companies have already adopted Pix. Since its launch, approximately 75 million Brazilians have used Pix, either to pay or receive. In other words, 45% of the adult population in Brazil has used Pix at some point. In April 2021, the amount of Pix surpassed the amount of conventional wire transfers (TED and DOC), checks and bank slips (boletos de pagamento) combined. Transactions carried out by Pix (totalling BRL1,547 billion by May 2021) were already responsible for a transacted amount of more than BRL1,109 trillion.
Although Pix was launched in the end of 2020, the BCB has been continuously developing new features and products associated to it, as well as improving mechanisms to prevent frauds and facilitate the cancellation of transactions.
Under Brazilian regulation, open banking is defined as the “standardized sharing of data and services through the opening and integration of systems”. Open banking is based on the assumption that clients are the legitimate owners of their respective data and not the financial or payment institutions that hold it and, thus, have the right to share such data with third parties which may offer new products and services.
In 2020, the CMN and the BCB enacted the Joint Resolution CMN and BCB No 1/20 and Circular BCB No 4,015/20 to officially regulate and implement open banking in Brazil.
The Brazilian open banking regulation only allows the direct participation of regulated institutions. As a general rule, participation in the open banking ecosystem for purposes of account information services is mandatory for regulated institutions that are part of prudential conglomerates under Segments 1 and 2 (which includes the largest financial institutions in Brazil).
Beyond data sharing, open banking also encompasses payment initiation services, which enables the initiation of a payment transaction, ordered by the client, related to a deposit or prepaid payment account, held by the same client in a different financial or payment institution.
Participation in the open banking ecosystem for purposes of payment initiation services is mandatory for authorised financial institutions and payment institutions that offer deposit accounts and prepaid payment accounts to clients, respectively, and also to payment initiation services providers (PISP).
Open banking in Brazil is being implemented in different stages, from February 2021 to September 2022.
Moreover, it is worth mentioning that local regulators are working on the implementation of the so-called open finance in Brazil (ie, the joint implementation of open banking and open insurance). In view of that, in July 2021, the Superintendence of Private Insurance has published Resolution CNSP No 415/21 and Circular SUSEP No 635/21, which provide guidelines for the implementation of the open insurance system.
In line with open banking, open insurance is expected to be implemented gradually, in different stages.
Once fully implemented, open finance promises to significantly change the financial and payments industry, promoting a more competitive and efficient market.
Financial and Technology Innovations Laboratory (LIFT)
The Financial and Technology Innovations Laboratory (LIFT) was launched by BCB in May 2018. LIFT is a joint initiative by the National Federation of the BCB’s Civil Servants Associations (Fenasbac), counts with the support of large tech companies, and it aims to promote the collaboration between academia, market, technology enterprises and fintechs towards technological innovation in financial activities.
People and enterprises interested in being part of LIFT can submit their projects, which should be consistent with the matters defined by the committee composed by the BCB, IT enterprises and Fenasbac. Projects that are selected will be submitted to an incubation process and receive support for the development of a prototype. LIFT comprises LIFT Lab and LIFT Learning.
LIFT Lab focuses on enterprises and/or people interested in bringing new ideas of entrepreneurship to the financial market and that just need a small boost to achieve their goals.
LIFT Learning focuses on partnerships with universities and research centres to foster innovation among young students, concentrating on projects that involve academic representatives in the discussion of challenges originated from activities carried out in the SFN. LIFT’s initial editions comprised, as finalists, 12 projects in 2018, 17 projects in 2019, 21 projects in 2020. In the 2021 edition, 11 projects were selected and are participating in the LIFT Lab, with the support of technology companies.
It is worth mentioning that LIFT was considered a type of sandbox (called a sectoral sandbox), driven by the BCB before launching its official regulatory sandbox (as detailed below). The sectoral sandbox supports the testing of innovative solutions before going to market, regardless of whether these solutions are regulated or not. For this reason, it does not provide access to any type of regulatory exemption.
The sectoral sandbox aims to create a space for fintechs and financial institutions to collaborate on development of new products and proofs of concept in an environment outside the market and without actual clients.
Similar to other well-developed jurisdictions, such as the United Kingdom, the Brazilian regulatory sandbox is a controlled and limited environment that allows companies to test their projects and to innovate. The objectives of the regulatory sandbox are to boost innovation, develop new projects and promote competitiveness in the financial system. At the same time, the regulatory sandbox leads to the creation of a modern regulation adapted to innovation and new financial/payment products. Usually, the financial system and innovation are many steps ahead from regulation and the regulatory sandbox aims to reduce this distance.
In Brazil, the idea of creating a regulatory sandbox started to be discussed by the BCB primarily to incentivise and facilitate innovation and product development, but also with the objective of adapting the Brazilian regulation to new business models.
Regulatory sandboxes in Brazil may be created by different regulators, depending on the specific sector in which the initiative is implemented. As a consequence, Brazil has regulated in the recent past different regulatory sandboxes, according to the respective jurisdictions of the regulators. The BCB’s regulatory sandbox is applicable to both financial and payment systems. In addition, there are other regulatory sandboxes created by the Brazilian Securities and Exchange Commission (CVM), which is applicable to the capital market, and by the Brazilian Private Insurance Superintendence (Susep), that applies to the private insurance market.
The three different regulators mentioned above exchange information and experiences to deal with certain types of projects, particularly when there are products or activities that are subject to jurisdiction of more than one of those regulators.
Additionally, it is worth mentioning that CMN and BCB recently established the guidelines for the operation of the regulatory sandbox, also called "Controlled Tests Environment for Financial and Payment Innovations", by means of Resolutions CMN No 4,865/20 and BCB No 29/20.
In the BCB’s point of view, the regulatory sandbox is an environment in which entities from the financial or payment industries will be licensed to test, for a specified period of time, an innovative project. In order to benefit from the regulatory sandbox, the project has to employ technological innovation or promote alternative use of existing technology, bringing improvements to the financial industry, such as gains of efficiency, reduction of costs or increased security.
The BCB has been developing new projects with the use of the blockchain technology, amongst which are the Regulatory Entities’ Information Integration Platform (in Portuguese, Plataforma de Integração de Informações das Entidades Reguladoras – PIER) and the Alternative System for Transactions Settlement (SALT).
PIER is a blockchain-based technology that aims to facilitate the exchange of information among the BCB, CVM and Susep. PIER was launched on 1 April 2020, and has the potential to aggregate a variety of databases from other public entities, such as information from the judiciary, boards of trade and international financial stability bodies.
In its turn, SALT aims to be a contingent solution that would be able to immediately replace core functionalities of the main Brazilian Real Time Gross Settlement System in case of its full collapse. SALT is still just a conceptual project and it has no perspective of implementation yet.
In 2021, the BCB published the guidelines associated with the development of the CBDC in Brazil (Real Digital), encompassing its operation, legal guarantees and technological assumptions.
According to the BCB, the Brazilian CBDC will focus on technology and aims to stimulate innovative business models and its usage in retail. The distribution model to be implemented is intermediated. This means that the BCB will issue the CBDC and it will be passed to the end user through the participants of the payment system, as occurs today with the Real physical bills.
With the CBDC, the BCB aims to promote the application of new technologies, such as smart contracts, IoT (Internet of Things) and programmable money, in new business models, which may increase the efficiency of Brazilian financial and payment systems.
The legal framework will be adjusted in order to provide the legal guarantees to the CBDC, which shall be in accordance with the requirements of the Law No 13,709/18 (the General Law for the Protection of Personal Data) and Law No 9,613/98 (the Anti-Money Laundering Law).