We are witness to sweeping changes taking place in Canada and the world in the delivery and operation of financial products, services and technologies.
"Fintech", or financial technology, is the term that is now commonly used to refer to innovation – some would say disruption – in financial services. Of course, mention the word "financial" in the same breath as "innovation" or "disruption", and invariably regulators will think of another word: "risk". Prudentially and sensibly regulating the financial sector to manage risk, not to mention market conduct, consumer protection, money laundering and market integrity, among other important areas, is the collective job of our various Canadian regulators. However, the Canadian regulatory framework is an uneven, fragmented, divergent and overlapping patchwork when it comes to fintech. The identity of the regulator and the nature, scope and degree of any applicable regulation depends on the entity and the type of product or service involved.
Federal financial institutions are regulated primarily (and quite extensively, including capital requirements and risk exposure) at the federal level, with the possible overlay of provincial and territorial consumer protection, privacy and insurance laws. Meanwhile, fintech companies are only lightly regulated under provincial privacy and consumer protection laws and to some degree under federal privacy, anti-spam, anti-money laundering and competition laws. It is only in the area of securities regulation, which is still an area of predominant provincial jurisdiction, that there is some degree of equality between broker-dealer incumbents and fintech companies. Provincial securities laws apply to fintech activities such as raising the capital required for funding online lending and registration requirements for robo-advisor portfolio management. That said, progressive securities regulators are looking to potentially tailor their regulatory model to better fit this quickly changing financial landscape. Still, outside of securities laws, for the most part, particularly at the federal level, the regulatory rules of the game are determined by who the player is, rather than the game they are playing.
Operating in a newly developing sector, this leaves independent fintech companies with much more flexibility than their more established and more regulated financial institution competitors. The incumbents and traditional financial institutions in Canada are, of course, not standing still in the face of this onslaught of change. They are actively examining their businesses and operations and taking steps to address these changes and to determine how to face this unregulated competition.
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