Watchdog eyes easing rules for fintech firms

OSC releases details on new LaunchPad hub

As regulators around the world struggle to strike a balance between regulation and innovation, the Ontario Securities Commission says it is prepared to be flexible to help start-up financial technology firms get to market.

Canada’s largest capital markets watchdog will even consider a time-limited relaxation of the rules as firms and the regulators test the waters with new business models for everything from consumer and business loans to money management to novel payment technologies.

The regulatory stance was revealed Monday morning as the OSC provided details about the creation of LaunchPad, a fintech hub within the regulator with a dedicated team to deal with new and early stage fintech businesses.

“This initiative reflects the OSC’s commitment to regulation that is in step with innovation,” said Maureen Jensen, chair of the regulator. She first revealed the plan to embrace fintech development during a lunch- eon address to a business crowd in Toronto last month.

While the plan encourages financial technology firms and the innovations they bring, it is also intended to bring more players under the regulatory umbrella to ensure consumers have some protection provided by the rules and scrutiny.

“What we’re trying to do is make sure is that all of the investor protection pieces we have with all of the other incumbent businesses are applied, they’re just applied differently,” Jensen said in an interview Monday. That could mean lowering investment limits so investors don’t get too concentrated in a fintech startup, or allowing documents that are intended to assess investor suitability to be filled in electronically instead of during face-toface meetings.

“There are some requirements that were built ... in a paper-based environment when you were sitting across a table and that may not work in a technology platform, so we may have to give some type of relief to help these firms be in compliance and at the same time test their business,” said Pat Chaukos, chief of the OSC’s new LaunchPad fintech hub.

She said she hopes startup and early stage fintech firms approach the regulator to find out whether and how current securities regulations apply to their business models, and then work with the OSC to adapt.

“If we’re an afterthought it becomes very expensive for these firms to then try to put in compliance or any type of investor protection measures into their platforms,” Chaukos said.

She added that the OSC is prepared to be flexible because a single solution is unlikely to work with every business model.

In a statement Monday, the regulator said it is willing to consider time-limited registration or even exemptive relief from regulations “in appropriate cases” for innovators to test their products and services.

According to industry estimates, there are more than 100 fintech firms already operating in Canada that offer financial products and services including consumer and small business loans, payment platforms and investment management.

The OSC intends to apply what is learned from the fintech startups that use its new hub to “modernize” regulation for other businesses. Jensen said the technology-enabled processes might end up lightening the regulatory burden for businesses beyond the fintechs. forward and that costs dollars.”

Chemtrade’s expression of interest was made in 2015, when Toronto-based Superior Plus Corp. was also weighing a bid for Canexus.

Superior Plus did offer, and Canexus accepted, an all-share offer worth $1.70 per share at the time, but U.S. antitrust authorities objected to the deal because it would give the combined company too much control of the sodium chlorate market in the U.S. Sodium chlorate is used to bleach wood products like tissue paper.

“As demonstrated by past behaviour, your board is not opposed to a sale of the company as long as the sale reflects full and fair value for our assets and our growth potential. The Chemtrade offer simply doesn’t do that,” Canexus board member Art Korpach wrote in an open letter to shareholders last week.

Chemtrade’s statement Monday reiterates the Toronto-based company’s view that its $1.50 per share bid “fairly reflects the composition and expected performance of Canexus’ portfolio of assets,” but some analysts expect the company may raise its bid to close the deal.