While the rapid and exponential growth of Financial Technology
(FinTech) companies appear to signal an impending
wave of M&A, certain impediments exist
that may mitigate these projections. FinTech companies develop and
market technologies that facilitate a variety of financial
transactions through electronic mediums. Since 2010, over 80
FinTech companies in Canada have garnered about $1 billion in investments. For private FinTech
companies worldwide, investments have increased from $1.8 billion USD in 2010 to $19 billion USD in
2015. This unprecedented growth prompted the Competition Bureau to identify FinTech
companies as potential disruptors to the Financial Services
industry and undertake a study to determine whether there should be
regulatory reform as a result.
A Wave of M&A
Predictions of substantial M&A activity among FinTech
companies, commonly referred to as a wave of M&A, abound. There
are a variety of reasons supporting these predictions. First, the
rapid growth and funding of FinTech companies may give rise to
companies sufficiently large to acquire other, smaller FinTech
companies. Second, the concentration of FinTech companies in
particular sectors is unsustainable. Some of these sectors seem to
include lending, wealth management and payments. The finance
Capital Financial predicts market consolidation where companies
in these sectors will enter into partnerships or merge. Third,
FinTech companies constitute a threat to the big banks. To
successfully compete in the marketplace, these banks may undertake
acquisitions of FinTech companies (or potentially launch their own
FinTechs). Fourth, some internet companies seek to enter the
FinTech marketplace and may also do so by acquisitions of FinTech
Impediments to FinTech M&A
FinTech companies may overlook regulatory compliance as they
often fail to consider themselves financial services businesses
subject to regulatory regimes. The regulatory regimes applicable to
FinTech companies also appear to be somewhat unclear given their
novelty. The effects of this, however, may frustrate the predicted
wave of M&A. Consider due diligence. A significant component of
the M&A process for both buyers and sellers, undertaking due
diligence, requires familiarity with regulatory limitations and
requirements. The absence of this familiarity may detrimentally
thwart the due diligence process and eventual business transaction.
Similarly, compliance with regulatory regimes may impart to FinTech
companies the appearance of capacity for future growth and success.
Where FinTech companies fail to comply, prospective investors and
purchasers may draw adverse inferences. In light of the foregoing,
the projected wave of M&A activity may be more of a ripple.
The author would like to thank Samantha Sarkozi, Summer
Student, for her assistance in preparing this legal
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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