Comparative Guides

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4. Results: Answers
Does the fintech sector present any specific challenges or concerns from a competition perspective? Are there any pro-competition measures that are targeted specifically at fintech companies?

Answer ... The Canadian banking system is dominated by five large chartered banks. These institutions are conservatively operated and strictly regulated, which has resulted in a banking system that is regarded as one of the most stable in the world. A possible concern, however, is a lack of competition in the marketplace, exacerbated in part by the heavy regulation of the industry and the fact that Canadian consumers typically view their own banks favourably and may not be willing to switch service providers.

In December 2017 the Competition Bureau Canada, an independent law enforcement agency which ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace, published a market study report following an 18-month study of the fintech industry. The report provided a number of recommendations to Canada’s regulators regarding how to foster fintech innovation and competition in order to benefit Canadian consumers. A key takeaway from the report is that regulation should be minimally intrusive in order to ensure that it does not inhibit market competition. A progress report published in September 2019 examined recent regulatory and policy changes that indicate progress in reducing barriers to innovation and entry of fintech into the marketplace.

One potential anti-competitive practice identified by the Competition Bureau in the progress report is the practice of ‘de-risking’ by Canadian banks. Banks can terminate or refuse to provide banking services to clients engaged in payment or money transfer services in order to minimise the banks’ own risk of non-compliance with Canada’s anti-money laundering and counter-terrorist financing (AML/CT) regime. A fintech business will suffer serious implications to its business if it is unable to access banking services. Thus, by de-risking, banks can potentially prevent the entry of new competition into the marketplace. Canada’s Department of Finance has undertaken consultations on the practice of de-risking as part of its current review of Canada’s AML/CT regime.

For more information about this answer please contact: Kelly Samuels from EKB | Edwards, Kenny & Bray LLP