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CVM changes its rulemaking process and introduces impact analysis and regulatory sandbox


José Luiz Homem de Mello; Alessandra Carolina Rossi Martins

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​On March 19, 2019, the Brazilian Securities Commission (CVM) published CVM/PTE Resolution (Deliberação) No. 48 of 2019 (Resolution 48/19) modifying its rulemaking process. Among the main changes are the introduction of a phase for assessment of the regulatory impact as a means to consider the cost-effectiveness of a proposed rule and the possibility of introducing a regulatory sandbox phase through issuance of temporary rules for empirical testing of their adequacy to market requirements.

Resolution 48/19 replaces the process under CVM/PTE Resolution No. 170 of 2014. The prevailing rulemaking process comprises only three phases: (i) pre-public hearing; (ii) public hearing; and (iii) post-public hearing. The new rulemaking process will comprise five phases: (i) opening and classification; (ii) regulatory impact analysis (RIA); (iii) pre-public hearing; (iv) public hearing; and (v) post-public hearing. Rulemaking processes will continue to be conducted by the Market Development Superintendence (SDM) and by the Accounting and Auditing Standards Superintendence (SNC), according to their respective scopes of activities.

The regulatory impact analysis is now an independent phase of the ruling process, while the possibility of enacting temporary regulations was included in the pre-public hearing phase.

The changes brought by the new resolution fall within the scope of Strategic Project for Regulatory Compliance Cost Reduction whose main purpose is to increase regulatory efficiency. Resolution 48/19 allows control over the adequacy of regulatory projects prior to their enactment as a final rule.

The first level of control of adequacy and suitability of a regulatory project will happen soon after the opening and classification phase. As a rule, the new regulatory projects must be sent to the Economic Analysis and Risk Management Advisory Office (ASA) and will undergo a specific regulatory impact analysis phase. Resolution 48/19 establishes that the regulatory impact analysis phase is mandatory for all new regulatory projects, except those expressly excluded (those intended to correct syntax, spelling, punctuation, typographical and other errors pursuant to article 6 of Resolution 48/19).

The regulatory impact analysis will be carried out through a specific study held by ASA or an institution with which CVM has an agreement. The studies intend to point out the impacts that a certain rule will cause on the Brazilian market, and will be submitted to the CVM Risk Management Committee (CGR) for review. Upon CGR's approval, the regulatory impact analysis will be disclosed to the public and the rulemaking process will go to the next step (pre-public hearing).

The pre-public hearing phase incorporates the second main change to the CVM rulemaking process brought by Resolution 48/19. In line with last year's discussions between CVM and the market, the new rulemaking process now allows the creation of an experimental regulatory environment where temporary regulatory instruments may be issued to empirically assess the benefits and most suitable procedures to implement a recommended solution.

With this novelty, the regulator will have means to test, individually and for a limited period, regulatory changes that, due to their features and according to the CVM Board, justify a trial environment, avoiding additional risks to the national financial system or to investors' protection.

This environment is known as regulatory sandbox. The term is adapted from the literature used in the computer science world to express the possibility of isolating certain variables in the execution of a program. In case of regulatory changes, it means the temporary issuance of rules so that market players may test disruptive ideas under the regulator's oversight.

After the pre-public hearing phase, CVM gathers the results obtained and the considerations sent by the public in general, as well as the results under the trial regulatory environment, and forwards the final regulatory project for a public hearing. Such hearing will last 90 days for final considerations by market players so that, in the last phase, the SDM and SNC may eventually draft a public hearing report to be submitted to the CVM Board. The CVM Board will then decide on the definitive issuance and publication of the rule or its dismissal.

With these changes, the local regulator stands close to regulatory models adopted in Singapore and in the United Kingdom where the regulatory sandbox concept is already well established. Finally, it is worth mentioning that this measure was highly expected by the market. CVM had already announced in November 2017 that it was working on the project. The change arrives as good news, particularly because of the increasing presence of fintechs in the financial and capital markets and their new business models based on innovative technologies, and shows the regulator's attention and incentive towards innovative projects.

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