A "hackathon," hosted in November by the Ontario Securities Commission (OSC), gave a glimpse into the future of technology and how it may shape the structure and operations of financial firms and their investment advisors.
Although financial services firms, such as large banks and ac- counting firms in other countries have recently held these contests designed to promote and support innovation in financial services, the OSC event, called RegHackTo, was the first such regulator-sponsored event in Canada.
The weekend-long competition was attended by the entire executive branch of the regulator, thus signalling the significance the OSC attached to the event. Another 40 OSC staff members volunteered their time, and Charles Sousa, Ontario's minister of finance, also attended.
Although the many ideas generated during the session may take some time before bearing fruit, the initiative indicates a change in tone at the OSC.
Adam Felesky, president of Portag3 Ventures GP Inc., a Toronto-based venture- capital fund, and a judge at the event, says the hackathon demonstrated that the OSC has a "spirit of openness" regarding fintech and that the regulator recognizes how new developments can help it - and the financial services sector - to modernize. Felesky called RegHackTo an "olive branch" extended to the finservices community and an acknowledgement that the OSC needs assistance in dealing with fintech.
The team from Existence Labs, a "blockchain" startup firm based in Montreal, took first place for its Keystamp idea. This proposal would allow investment dealers and their advisors to use blockchain technology to prove to regulators, instantly and irrefutably, that clients received and agreed to "know your client" (KYC) and risk-tolerance documents. ("Blockchain" is the technology platform behind bitcoin, a cryptocurrency, but the term also can be applied to more traditional financial data-tracking channels.)
The Keystamp concept could help protect advisors when investigations of client complaints hinge on issues of credibility.
"[Keystamp] is a tool that firms and advisors can use, for example, to protect themselves from lawsuits or to reduce the cost of lawsuits," says Francis Pouliot, the chief strategy officer of Existence Labs and the lab's team's leader at the hackathon.
In addition to being a contest, the hackathon was a networking opportunity for people interested in fintech. The event also was a chance for the OSC and securities industry members to learn more about the fintech startups that could shape Canada's finservices sector in the future.
Over the course of the weekend, 30 teams consisting of up to six people each were tasked with finding a solution to one of several problems. The so-called "problem statements" created by the OSC covered four main topics: regtech (the use of technology to resolve issues in regulation and to automate compliance tasks); KYC/identity authentication; financial literacy; and capital markets. Each topic was broken down into two or three specific problems on which the teams could focus.
Teams chose which problem they wished to tackle. As Pat Chaukos, chief of the OSC's newly created technology innovation hub known as OSC LaunchPad, notes: "You want to leave [the selection criteria] a little more broad so you can see some of the creativity in the solutions that come up." (LaunchPad is designed to help startup firms navigate Ontario's financial services regulations and get those firms to market faster.)
The hackers did not receive any remuneration for placing among the top three teams, but all code and ideas developed over the weekend belong to their creators.
Blockchain also was the focus of Team Extreme Securities 2k16, a team lead by Toronto-based Deloitte LLP's blockchain unit. This team's idea, Rubix Solution, made the competition's top three entries. The team created a voluntary registry and an aggregated list of OSC-approved "initial coin offerings" (ICO). An ICO allows an issuer to raise cryptocurrency from investors located anywhere in the world to fund a venture.
"[ICOs] are not on the regulator's agenda and, from a consumer financial-protection perspective, I strongly believe that [ICOs] should be on the regulator's agenda," says Iliana Oris Valiente, co-founder and the strategy and execution lead on Rubix by Deloitte's concept team in Toronto.
Four out of six members on the Rubix team are employees of Rubix by Deloitte, a unit of the global consultancy firm that is focused on the development of blockchain technology. The other team members included a software developer from Toronto-based Toronto-Dominion Bank and a lawyer.
Team Pendio, another team that received an honourable mention, was made up of high-school students. This team created an app that would verify an advisor's qualifications by connecting the OSC's website with LinkedIn.
The backgrounds of Team Pendio's members (who had to be 18 years of age or older) also included university students, employees of large finservices institutions, fintech experts, software engineers, lawyers and accountants.
The hackers' proposed solutions were judged by a panel based on how well they met three criteria: the creativity of the idea; how the product makes regulatory systems more user-friendly and approachable; and how well the app works.
The hackathon's judges included Maureen Jensen, the OSC's chairwoman and CEO, as well as four veterans of the investment and fintech industries. IE
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