The fintech space may not be the final frontier, but it’s certainly ripe for exploration. Dozens of new companies are offering digital platforms for payment, loan processing, trading, and investing, to name a few. As a result, regulators all over the world have a difficult objective: to protect investors without stifling technological innovation.
“As the regulator here in Ontario, we’re … facing the same challenges,” Ontario Securities Commission (OSC) Chair and CEO Maureen Jensen told the Financial Post. “Our regulations have been really focused over the last many years on the local delivery and the face-to-face delivery of financial services, and that is being changed by technology.”
In recognition of that change, the OSC created LaunchPad, an innovation hub that allows firms with new tech-based business models to get off the ground with time-limited exemptions from regulation and close supervision. The initiative aims to develop fintech regulation without making a more cumbersome system. Jensen’s team accomplished this by drilling down to the original principles of existing regulatory requirements, and seeing if the new business models adhere to those principles.
The beauty of this approach is that it doesn’t restrict fintech startups any more than necessary. It’s up to the firm being evaluated to show the watchdog exactly how they adhere to foundational concepts like investor protection and knowing your client. “Sometimes it’s through online forms, [or] it’s through risk identification,” Jensen said. “They’ll use behavioural economics, [and] they start understanding their clients more than they have in the past.”
Of course, the fintech wave isn’t just confined to Ontario; it is happening in other provinces and countries as well. That’s why the OSC is collaborating with its counterparts within and outside Canada to cooperate on an approach to fintech firm regulation. The watchdog entered into a memorandum of understanding with Australian regulators in November, and is currently in talks with the UK’s Financial Conduct Authority to iron out a similar agreement.
The OSC has also requested private individuals for their input, and the response has been significant. Late last year, they received 100 applications for their inaugural 10-member Fintech Advisory Committee. In November, they organized a weekend-long hackathon event called RegHackTO, where 29 teams of coders, designers, consultants, and entrepreneurs pitched their ideas to streamline regulation.
“It’s not just the financial sector that’s being challenged, but also the regulators,” Jensen said. “It’s really important that we as regulators realize that we have to modernize and be forward-looking just like the businesses do… You have to keep on innovating internally. If you don’t do that, you get stuck.”
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