1. FINTECH AT THE CROSSROADS
of Technological Innovation, Financial Regulation and Legal Compliance
2016 IT.CAN Annual Conference
Anne Butler, VP and General Counsel
Oct. 25, 2016

2. AGENDA Current regulatory context Challenges and opportunities
Regulatory response
What’s next?

3. CURRENT REGULATORY CONTEXT

4. Structures include: Technology Rules Standards Policies Codes Shared
Payments Canada-Owned
Infrastructure
(LVTS and ACSS)
Structures of Indirect Clearers
Structures of entities who use Payments Canada members for access to LVTS and ACSS
Retail structures
National retail systems
Mix of prominent & systemic interbank systems
Payments Canada's clearing & settlement by-laws/rules
Closed-loop / credit card space
Structures include:
Technology
Rules
Standards
Policies
Codes
Back-office
structures of Direct Clearers
in LVTS and ACSS 4

5. Canadian Payments Act, Bylaws and Rules
Shared
Payments Canada-Owned
Infrastructure
(LVTS and ACSS)
Structures of Indirect Clearers
Structures of entities who use Payments Canada members for access to LVTS and ACSS
Back-office
structures of Direct Clearers
in LVTS and ACSS
Canadian Payments Act, Bylaws and Rules
Payment Clearing and Settlement Act
Bills of Exchange Act
Principles for Financial Market Infrastructures (PFMIs) 5

6. Payment Card Networks Act
Retail structures
Payment Card Networks Act
Canadian Code of Practice for Consumer Debit Card Services
Code of Conduct for the Credit and Debit Card Industry in Canada 6

7. Federal & Provincial Financial Institutions Statutes
Provincial Consumer Protection Statutes
Competition Act
Securities laws
Proceeds of Crime and Terrorist Financing Act
Personal Information Protection and Electronic Documents Act 7

8. OVERSIGHT OF THE CANADIAN PAYMENTS LANDSCAPE
National Retail Payment Systems
(e.g. card networks, online payment schemes)
Prominent Payment Systems
(e.g. ACSS)
Systemically Important Systems (e.g. LVTS)
Increasing Weight on Safety/Soundness
Increasing Weight on User Protection
Efficiency 8

9. CHALLENGES and opportunities

10. FINTECH INNOVATION Payment service providers: Robo-advisors
digital wallets
international remittances
point-of-sale mobile
wearable payment devices
digital/crypto currency FX
Robo-advisors
Crowd funding
Peer-to-peer lending
Telematics 10

11. Regulatory challenges
Regulated FIs:
significant regulatory oversight for entity-wide activities
FinTech:
Navigating a complex regulatory environment – what laws apply?
Cost of compliance can hinder new entrants and innovation
Regulation that does not contemplate the business model
Demand for a “level playing field”:
From both FIs and FinTechs
Regulate by what you do -- not who you are 11

12. SOME EXAMPLES Payment services: Robo-advisors: Crowd funding:
Holding funds – how long and how much is banking?
Creating legal certainty around rights and obligations – when has a payment occurred?
Who is being regulated? New and different risks to be understood, assessed and regulated
Robo-advisors:
Verification of owner; best interest standard
Crowd funding:
Navigating securities law requirements and exemptions
Peer-to-peer lending:
Consumer protection when things go wrong 12

13. REGULATORY RESPONSE

14. CANADIAN Regulatory response
Department of Finance:
FinPay Committee
Balancing Oversight and Innovation in the Ways We Pay (April 2015)
Financial Sector review (Aug 2016)
Competition Bureau:
Technology-Led Innovation and Emerging Services in the Canadian Financial Service Sector
Department of Innovation, Science and Economic Development Canada:
Consultation on Innovation Agenda 14

15. REGULATORY SANDBOX
A ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question.
Financial Conduct Authority (2015) 15

16. Who’s playing in the sandbox?
Open for business:
UK Financial Conduct Authority (May 2016)
Hong Kong Monetary Authority (Sept 2016)
Consultation papers:
Australian Securities and Investment Commission (June 2016)
Monetary Authority of Singapore- (June 2016)
Financial Services Regulatory Authority of Abu Dhabi Global Market (2016)
In development:
OSC Launchpad (Sept 2016)
US - Financial Services Innovation Act of 2016 (Sept 2016)
- Supporting Responsible Innovation in the Federal Banking Industry (March 2016) 16

17. What’s next

18. REGULATORY EXPERIMENTs
Central Banks around the world experimenting with block chain
Almost all English speaking central banks experimenting with putting central bank currency on a block chain
Canada – Project Jasper (2016) 18

19. PROJECT JASPER
Collaboration between the Bank of Canada, the big 5 banks, R3 and Payments Canada.
Researching how risk free central bank assets might be issued onto a distributed ledger:
to facilitate inter-bank payments
improve regulatory and compliance reporting
eliminate costly reconciliations
act as a base layer for other DLT clearing and settlement use cases.
Phase 1 – shadow exchange (not using real currency) of central bank digital currency using a fully transparent blockchain
Phase 2 – shadow exchange on a more tailored blockchain platform – bilateral transaction transparency 19