The Canadian Securities Administrators (CSA) is stepping up its efforts to nurture innovation in the financial services sector with the introduction of a national “regulatory sandbox” for novel products and services on Thursday.
The concept will allow financial services firms to test innovative products and services without requiring full regulatory approval in a way that also provides investor protection. For example, firms may be allowed to test innovations with a limited audience, or under a time-limited exemption.
The Ontario Securities Commission (OSC), the country’s largest provincial securities commission, opened Canada’s first regulatory sandbox as part of its new, dedicated financial technology (fintech) team, OSC LaunchPad, in October 2016. Since then, other Canadian regulators, particularly the B.C. Securities Commission and Quebec’s Autorité des marchés financiers (AMF), have also stepped up their focus on the fintech space. Now, the rest of the CSA is on board.
“The objective of this initiative is to facilitate the ability of those businesses to use innovative products, services and applications all across Canada, while ensuring appropriate investor protection,” says Louis Morisset, the CSA’s chairman and president and CEO of the AMF, in a statement.
The CSA’s regulatory sandbox is open to innovations in a wide range of areas. This includes models that utilize artificial intelligence (AI) to generate trading recommendations, blockchain-based businesses, regulation technology ventures and other innovations. The CSA says that each proposal will be evaluated on a case-by-case basis and firms could be allowed to test their ideas throughout the Canadian market.
Firms that want to take advantage of the CSA’s new regulatory sandbox are to first run the idea by their local regulator, which can provide initial guidance on the process as well as the regulatory obligations.
Regulators might require firms to engage in live testing as part of the application process, the CSA notes. Firms will also be expected to produce a business plan, including a demonstration of potential investor benefits, and plans to minimize investor risks.
“We will consider applications, including for time-limited registrations, on a coordinated and flexible basis to provide a harmonized approach throughout Canada for business models, whether they are startups or incumbents,” Morisset notes.
Earlier this week, the OSC also announced that it has signed a deal with regulators in the U.K. that aims to help fintechs enter one another’s markets. This followed a similar arrangement between the OSC and Australian regulators last year.
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