Brazil to implement sandbox model for fintech, insurtech regulation

Through a joint initiative, the Brazilian government and bank and insurer regulators want to establish a regulatory sandbox for fintech and insurtech development.

“This initiative comes as a response to the transformation that has been taking place in the financial, capital markets and insurance segments,” economy minister Paulo Guedes said in a statement.

“The use of innovative technologies, such as distributed ledger technology, DLT, blockchain, robot-advisors and artificial intelligence, has allowed the emergence of new business models, reflecting the offer of products and services of higher quality and scope,” he added.

With the sandbox, the central bank and insurer regulator Susep can develop initiatives to smooth the market entry of companies.

The government sees the surge of fintechs and insurtechs as an efficient way to reduce high banking concentration in Brazil.

At the end of 2018, the five largest banks commanded around 81% of total financial system assets and nearly 85% of all loans.

This concentration also affects the insurance industry, as key segments like health and vehicles insurance are dominated by insurers linked to major banks.

According to a study by Fintechlab, commissioned by the economy ministry, 331 fintechs operate in Brazil, most in the payments segment. The insurance sector has 37 insurtechs.

But the real effect on competition remains unclear.

“The government was obligated to launch this initiative because new technologies and new entrants demand new regulations. However, major banks in Brazil remain very solid and they will have a lot of cash to protect their dominant positions,” Pedro Galdi, an equity analyst at Mirae Asset Management, told BNamericas.

Meanwhile, players applauded the government’s actions. 

"We are very happy with this initiative. The sandbox is already being used very successfully in the UK and Singapore. The practical result of this is the promotion of financial inclusion, with more people having access to banks and insurance companies and it also opens up space for new companies. This is highly positive for fintechs and insurtechs,” the founder of insurtech Kakau and head of the insurtech trade association, Henrique Volpi, told BNamericas.