On December 14, 2017, the Competition Bureau (the Bureau) published the final draft of its examination of Canada’s Fintech markets, Technology-Led Innovation in the Canadian Financial Services Sector, A Market Study, December 2017. The report is very similar to the draft report issued for comment in November 2017, except with the addition of an executive summary.

The Bureau’s report, which is intended as guidance for Canada’s financial sector regulators, acknowledges the significant progress in adapting the Canadian regulatory environment to support innovation in the financial services sector. However, it stresses that in order to achieve important policy objectives, such as consumer protection and a stable financial system, regulations should be modernized to promote greater competition and innovation for Canadians.

Based on the findings of this market study, the Bureau has proposed eleven broad recommendations for future regulation that features these characteristics:

  • Technology‑neutral and device‑agnostic: Rules that can accommodate and encourage new and yet‑to‑be developed technologies open the door to more innovative offers today and down the road;
  • Principles‑based: Instead of prescribing how a service must be carried out, the Bureau recommends a principles‑based approach that will allow regulators to be more flexible in their approach to enforcement as technology changes;
  • Function-based: Regulation should be based on the function an entity carries out, ensuring that all entities that perform the same function carry the same regulatory burden and when dealing with competitive providers, consumers have the same protections;
  • Proportional to risk: The Bureau says that regulation should be proportional to the risk, and recommends a tiered approach, where smaller players who pose less of a risk require less oversight. This, argues the Bureau, will give smaller players a level playing field to innovate;
  • National harmonization: The Bureau argues that regulation should be harmonized across Canada;
  • Encourage collaboration: Greater collaboration, says the Bureau, by use of such tools as regulatory sandboxes and innovation hubs, will enable a clear and unified approach to risk, innovation and competition;
  • A fintech policy lead: The Bureau argues that a Canadian fintech policy lead is needed to spearhead fintech development. This would provide, says the agency, a one‑stop resource for information and encourage greater investment in innovative businesses;
  • Greater access to core infrastructure and services: The Bureau recommends greater access to the banking system, including the payments system, under the appropriate risk management framework. This will, says the Bureau, facilitate the development of innovative new fintech services;
  • Open access banking: The Bureau supports open banking, which means greater access to both data and systems. With risk mitigation measures in place and greater access to consumer data gained through informed consent, maintains the Bureau, fintech firms can help Canadians overcome their inability or unwillingness to shop around and switch between service providers;
  • Digital identification verification: This, notes the Bureau, would reduce customer‑acquisition costs for service providers, ultimately reducing the costs of switching for consumers and facilitating regulatory compliance where identity verification is needed; and,
  • Continued review by policymakers of the regulatory frameworks: Doing so, says the Bureau, will ensure that these frameworks remain relevant in the context of future innovation and can achieve their objectives in a way that does not unnecessarily inhibit competition.

Technology-Led Innovation in the Canadian Financial Services Sector, A Market Study, December 2017 is available online from the Competition Bureau’s website.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

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