Regulating Fintech In Canada.

Author:Graham, Jeffrey

Many believe that Canada has the potential to become a leading, if not the leading, global fintech hub. While the Canadian financial services regulatory system has helped to protect Canadians and their financial institutions from disruption and financial setbacks, our regulatory system has also perhaps not contributed to the development of the most robust fintech sector compared to our global competitors.

There are some important recent regulatory developments that have the potential to make a very positive impact on Canada's ability to become a global fintech hub. A description of recent regulatory developments and some thoughts on what else we can ask our public policy makers to do to help to create the optimal regulatory environment for fintech in Canada are discussed below.


It is clear that one of the main challenges for fintech companies is navigating regulation. While political sentiment towards fintech is largely favourable (governments are typically keen to be seen to be encouraging innovation; they have also seen the potential for fintech to progress other policy objectives like increasing the accessibility of financial services and reducing the size of the unbanked or under-banked population), regulatory approaches have been slower to catch up.

A key requirement for most fintech companies will be a detailed analysis of their business models against applicable financial regulation to fully understand what can be achieved without becoming a regulated entity, or, conversely, to help them seek appropriate licences or approvals. If they are consumer facing, fintechs will also need to be aware of the necessary consents and applicable regulations designed for consumer protection. A challenge is that regulation in matters such as payment services and consumer protection continues to evolve. For existing regulated financial institutions, the concern is that the environment for themselves and their fintech partners be predictable, accessible and that their regulators are well informed and supportive of their efforts to improve customer experiences.

Canada - The Current Environment


At the Federal level there has been a great deal of recent fintech related activity within the instrumentalities of Government of Canada responsible for the financial sector.


To begin with, the 2014 amendments to the Proceeds of Crime (Money Laundering) Terrorist Financing Act ("PCMLTFA") made provision for the regulation of persons and entities that are engaged in the business of dealing in virtual currencies. Further, as amended, the PCMLTFA provided that no bank, federal or provincial trust company or credit union could open or maintain an account for, or have a correspondent banking relationship with, a person or entity dealing in virtual currency that did not have a place of business in Canada unless that person or entity was registered with FINTRAC. The implementation of the above amendments to the PCMLTFA awaits the adoption of regulations. The Government has indicated that it would aim, in these regulations, to cover virtual currency exchanges, but not individuals or businesses.

More recently, in June of this year, the Government promulgated regulations to the PCMLTFA that make material changes in the areas of client identification and verification, especially for clients who are not physically present and make provision for the adoption of electronic signatures. These changes will make the on-boarding of on-line clients less burdensome and this should facilitate the development and implementation of certain new fintech financial service offerings.

Office of the Privacy Commissioner

Over the past several years the Office of the Privacy Commissioner ("OPC") has published a number of reports that provide helpful background to some of the key issues that underlie a more secure environment for personal information including reports on protecting identity in a digital world, predictive analytics and cloud computing. There is a broad consensus that the most important issue from a consumer acceptance standpoint is the protection of personal information and it appears that the OPC is fully aligned with the objective of creating an optimal environment for fintech in Canada.

Department of Finance

Last year the Department of Finance issued a consultation paper seeking input on the oversight of national payment systems. Core clearing and settlement systems are currently subject to regulation and oversight for safety, soundness and efficiency purposes. However, this oversight does not fully extend to national retail payment systems, including digital wallets and virtual currencies. As a result, these systems are not currently subject to comprehensive and consistent rules that protect consumers and ensure public confidence in the use of electronic payment methods. Also last year, the Department established a forum of public and private sector representatives to discuss industry level developments in the Canadian payments system ("FinPay"). FinPay's mandate is to advise the Department on developments related to public policy aspects of payments issues (e.g. competition, innovation, safety, user needs or consumer protection); discuss approaches for dealing with emerging and ongoing challenges/opportunities in the payments system; and inform Government policy-making about the Canadian payments system.

Most recently, the Department has issued a consultation paper entitled "Supporting a Strong and Growing Economy: Positioning Canada's Financial Sector for the Future". Among the issues on which the Department seeks input is financial innovation and emergence...

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