Bruna Santos: From your perspective, could these new rules, proposed by Brazil’s Ministry of Finance, unintentionally limit growth and entrepreneurial activity?
Krisztian Katona: Brazil has a long history of market regulation with mixed results. The proposed preemptive rules aim to regulate digital markets by imposing stricter measures on larger, “systemically relevant” digital platforms. The proposal comes at a time when the entire Brazilian economy is undergoing digitalization, with AI and other forms of technological innovation transforming various sectors. Depending on how the new rules will be applied, they may end up causing more harm than benefit, and could unintentionally inhibit growth and entrepreneurial activity in Brazil.
The new preemptive digital regulations differ from the current policy framework by trying to prevent alleged competitive harms before they would occur. However, regulation, in the absence of a specific market failure that requires correction, could hinder not only the growth of digital companies but also innovation and the broader economy.
For example, the new rules’ increased scrutiny on transactions involving high-user digital platforms could limit expansion strategies for emerging technology companies, particularly those that aim to scale up through strategic partnerships or acquisitions. What we see based on the regulatory example of other countries is that new procedural obligations for designated companies may significantly affect fast-growing businesses, leading to higher compliance costs and legal complexities.
The new rules may also have a major impact on startups. Brazil has a vibrant startup ecosystem and the world’s fifth largest fintech market. The rules’ emphasis on increased monitoring and regulatory oversight may create additional barriers for digital startups looking to innovate. For example, tighter measures over platforms’ data usage and ecosystem integrations could discourage startups from experimenting with new business models, and this could limit their ability to disrupt incumbent companies or find unique niche areas. This may be particularly important in areas such as app development, with Brazil being the second fastest growing app market globally.
Increased digital regulation could also deter foreign investments as international investors may perceive that the new rules would add unpredictability to the Brazilian market. It’s important to keep in mind that countries like Brazil are competing with global tech hubs for investment. If the new compliance burdens are deemed too high, this could draw businesses away from the country. Brazilian policymakers will need to carefully balance regulation with incentives to ensure that the country’s quickly-growing digital economy remains attractive for entrepreneurs and investors.
Bruna Santos: How do you think Brazil can learn from other countries' approaches to digital regulation? Are there any international frameworks or policies that Brazil should either emulate or avoid?
Krisztian Katona: The few existing international preemptive digital frameworks are still regulatory experiments. So far only Germany and the European Union have fully functional regulatory frameworks in this space; in fact, the EU’s Digital Markets Act (DMA) has been fully operational only since March 2024. The United Kingdom’s Digital Markets, Competition and Consumers Act, which provides a different regulatory model around codes of conduct for specific companies, is expected to come into force in the coming months. It means that there is extremely limited experience with how these regulations work in practice. What are their intended and unintended consequences? Can they be considered a success? And, importantly, what are the metrics to measure their success? I believe it is too early to properly gauge their concrete effects. However, the initial results so far raise several questions as to their impact on innovation, investment, and economic growth.
Although various countries are considering digital reforms, there are no convergent proposals or results in sight. For example, recent US bills targeting a handful of technology companies raised numerous policy concerns and seem to have no political support to be adopted. Japan provides a different model by successfully fostering innovation while maintaining oversight under a co-regulatory approach. Co-regulation emphasizes cooperation between public bodies and private technology companies, promoting a transparent yet adaptable policy environment.
Digital competition and regulation don’t exist in a political vacuum. Importantly, each of these international approaches came as an answer to specific concerns in the particular country, often as a response to broader political objectives. For example, there has been a lot of discussion about how Europe’s DMA might fit into the EU’s broader push for “technological sovereignty,” which may be very different than the economic goals of other countries, especially those of emerging economies like Brazil.
As such, it is important to carefully study international approaches, but instead of emulating other countries’ models, the key for Brazilian policymakers should be to analyze and have an in-depth understanding of the unique market dynamics and necessities of their national economy. Is there a need for regulation? Would the proposed regulation be proportionate, not overly burdensome, and promote consumers’ welfare and market efficiency? And would the expected benefits outweigh their potential harms to Brazilian consumers, businesses, and the economy? These considerations are paramount as Brazil weighs regulation for the country’s digital markets.
Bruna Santos: In your view, what are the key challenges Brazil faces in balancing new regulations aimed at large digital platforms with the need to foster economic growth and competitiveness in the tech sector? How can policymakers avoid overreach while still addressing competition concerns?
Krisztian Katona: Brazil, as the current G20 Chair, is facing a pivotal moment in the global race for technological advancement. Regulating digital platforms will have a major impact as the entire Brazilian economy is being digitalized. AI and other forms of innovation provide tremendous opportunities for economic growth, increasing efficiency and competitiveness. At the same time, Brazil’s policymakers should carefully consider how new regulations may impact its consumers and businesses, including startups, that have benefited from digital products and services.
In recent years, Brazil’s startups accounted for over 70 percent of those of Latin America, reflecting that the Brazilian digital ecosystem is a driver of innovation and development for the entire region. Accordingly, policymakers should also consider how new regulations would impact Brazil’s regional leadership and global role in the technology sector.
To avoid regulatory overreach, Brazilian policymakers need to focus on a principles-based approach that adapts to technological changes without being excessively prescriptive. Effective rules require clarity, not just at the outset but also over time, as changed market circumstances may lead to unintended consequences. In addition, encouraging constant dialogue between regulators and the private sector could help ensure that the rules remain relevant to current market dynamics and provide the flexibility needed for continued growth and innovation. Collaborative regulation engaging companies and regulatory bodies could help in refining the policies.
Policymakers also need to prioritize market studies and evidence-based interventions to avoid unnecessary regulations that might stifle competition and innovation. Even after identifying a market problem, is new regulation the most effective way to address a specific market concern? And, importantly, how would new regulations fit into the existing policy and enforcement frameworks? As the Organisation for Economic Co-operation and Development (OECD), G20, and other international fora underscored, there is a high-level interrelationship of digital economy issues across several policy areas, including competition, data privacy, consumer protection, intellectual property, and national security. This interconnectedness raises the important question – would any of the existing policy frameworks already provide a better solution to the alleged market problem that the new regulation is deemed to address?
The Ministry of Finance has said that the need for regulation to deal with alleged competitive concerns must be balanced, without being overly burdensome and intrusive to digital platforms. However, it’s important to keep in mind that introducing new regulations is not costless, especially given the dynamic and innovative nature of digital markets. As such, it is extremely important to review the evidence and past experience and focus any proposed regulation on conduct that is demonstrably harmful to competition rather than seeking to address theoretical or speculative harm. That would risk overregulation, which could be particularly harmful to Brazil’s innovation ecosystem.
Finally, companies want to operate in economies with clear, fair, and principles-based regulatory environments, without extreme regulatory obligations and excessive expenses to operate. Under the proposed regulations, designated companies would face increased compliance costs. This would likely lead to a decrease in their innovation expenditure in Brazil. In turn, this could have larger spillover effects on the Brazilian economy, including national growth and productivity. This is particularly important for the global export competitiveness of Brazilian companies as well. How will Brazil want to position itself in the regional and global competition for technology investment and advancement? As Brazil’s policymakers consider this important question, they should ensure that the country’s competition and regulatory framework is fit for purpose and support the domestic economy, promote innovation, and benefit Brazilian consumers.
