‘Sandbox’ aimed at fintech startups
SECURITIES
• Canada’s provincial securities regulators have joined forces to create a regulatory “sandbox,” a system of tailored and flexible regulation for startup firms aiming to bring new business models to capital markets activities such as lending and financial advising.
The Canadian Securities Administrators, an umbrella organization f or provincial market watchdogs, will assess the merits of each business model, on a caseby- case basis. If a business registers, or receives some relief from regulatory obligations, it could be permitted to test products and services anywhere in the country.
“The objective… is to facilitate the ability of those businesses to use innovative products, services and applications all across Canada, while ensuring appropriate investor protection,” said Louis Morisset, chair of the CSA and chief executive of Quebec’s Autorité des marchés financiers.
One of the unique features of a so- called regulatory sandbox, which has been adopted in other jurisdictions such as the United Kingdom, is the ability to grant time- limited registration with regulators. This gives firms the ability to test out new technology or ideas without committing to the time and cost involved to obtain full regulatory oversight.
Canada’ s regulatory sandbox will also allow incumbent firms to apply for time- limited registration to test out their new ideas and products.
The types of firms expected to benefit from the new approach fall broadly into the category of financial technology, or fintech. These include online lending and crowd funding platforms, angel investor networks, and securities trading and advising systems that take advantage of technological innovations, the CSA said.
Ventures using cryptoc urrency or distributed ledger technology will also be eligible to apply, as will startups with business models that use of artificial intelligence for trades or recommendations.
Regulatory technology startups that offer risk management and compliance support services can also apply by contacting their local securities regulator.
Local regulators will refer eligible applicants to the CSA regulatory sandbox, so long as the platform, product, or service they offer provides “genuine technological innovation in the securities industry.”
The CSA says its staff may request live environment testing, a business plan, and demonstration of potential benefits for investors, as well as information on how investor risks are minimized.
The Ontario Securities Commission, Canada’s largest capital markets watchdog, created its own fintech hub called OSC LaunchPad in October. Since then, cooperation agreements have been forged with regulators in Australia and the United Kingdom to help spur international growth of the fintech industry.