One of the biggest challenges for the fintech space is the necessity of balance. Fintech firms want to stay ahead of the curve, but also need to abide by regulations that will ensure the safety of consumers. The Canadian fintech landscape lacks extensive regulation at the provincial and federal levels, but it is expected to come into play in the relatively short term. Some existing legislation around banking, however, does apply to the fintech sector. How can we balance the need for innovation with the security and safety required by law?
Many jurisdictions (including the UK, Singapore and Australia) have launched their own “regulatory sandboxes” seeking to create a regulatory “safe space” in which businesses can test innovative products and services without immediately incurring all the normal regulatory consequences of engaging in such activities.
The “sandbox” model could make a big impact in Canada. Until it gains more traction, Canadian fintechs can turn to “innovation hubs” such as MaRS, that offer start-ups dedicated advice to help them navigate the regulatory landscape. The Ontario Securities Commission has also opened its “Launchpad” program, a preliminary form of sandbox in which that province’s fintech firms can develop ideas.
Of course, just like you did as a kid, fintechs would eventually “outgrow” the sandbox model and become subject to existing and future regulations. Add to this the realization that any regulatory sandbox is, paradoxically, regulated to some extent (to prevent overcrowding, for example) and you have a more delicate ecosystem developing than previously thought – a terrarium, perhaps.