Rise of fintech includes many future risks, FSB says

The federal Competition Bureau is calling for securities regulators and the financial services sector to do more to facilitate the growth and development of financial technology (fintech) in the agency’s final report on the emerging sector, which was released on Thursday.

The Competition Bureau released a draft report last month setting out its recommendations in three key areas: retail payments, crowdfunding and the investment dealing/advice sector. With some minor exceptions, the final report’s recommendations are little changed from the initial version.

Read: Old obstacles affecting new competitors

Read: Report aims to enhance fintech innovation and competition

One notable change, though, is a greater emphasis on consumer protection related to crowdfunding in the recommendations for securities regulators. In particular, the Competition Bureau continues to call on regulators to provide guidance regarding the regulatory framework for crowdfunding, including the requirements for obtaining relief from know-your-client (KYC), know-your-product, suitability and prospectus requirements — but now adds the phrase “provided the necessary consumer protections are in place.”

Outside of that, the Competition Bureau continues to recommend that regulation in the fintech space be principles-based, technology neutral and proportional to risk; that securities regulators should continue to harmonize their approach; and that regulators should encourage greater openness and collaboration. The final report also calls for the government to name a “fintech policy lead” for Canada to help facilitate greater investment in innovative businesses.

The Competition Bureau’s recommendations for the investment advice industry are essentially unchanged from the draft report. Specifically, the final report recommends that regulators continue to push for increased price transparency and plain-language disclosure: “Prices for advice should be clear and easily understood by Canadians. Fees should be presented up front and consumers’ attention should be drawn to these fees.”

The final report also calls on regulators to encourage the use of technology to facilitate account switching and to automate processes, such as the collection of KYC and suitability assessments; that they tailor regulation to facilitate the entry of robo-advisors as low-cost alternatives to traditional advice; and that regulators continue to utilize the existing passport system to enable fintech firms to operate nationwide.

In addition, the final report calls on regulators to promote greater access to core infrastructure and services, such as the payments system; to embrace broader “open” access to systems and data in order to help clients shop around and switch firms; and to explore the potential of digital identification verification, which would also enable easier switching.

Finally, the final report endorses the use of mechanisms, such as regulatory sandboxes and innovation hubs, to foster greater development in fintech.

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