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Canadian Securities Regulatory Monitor News and Insight

Canadian Securities Administrators Fintech Initiatives: Regulatory Sandbox and Co-Operation

Posted in CSA, OSC
Ana BadourLaure Fouin

On February 23, 2017, the Canadian Securities Administrators (CSA) announced the launch of a regulatory sandbox. A regulatory sandbox aims at supporting Fintech businesses by allowing them to apply to the regulator to benefit from a more tailored approach to regulation that balances the need to facilitate the use of innovative products, services and applications all across Canada with appropriate investor protection.

As a result, the CSA will assess the merits of each business model, on a case-by-case basis, and allow innovative businesses to register or grant them relief from certain requirements to permit them to test their products and services throughout the Canadian market.

Examples of potential business models eligible to the CSA regulatory sandbox are:

  • online platforms, including crowdfunding portals, online lenders, angel investor networks or other technological innovations for securities trading and advising;
  • business models using artificial intelligence for trades or recommendations;
  • cryptocurrency or distributed ledger technology based ventures; and
  • technology service providers to the securities industry, such as non-client facing risk and compliance support services (also known as regulatory technology or regtech).

To apply to the CSA regulatory sandbox, businesses should contact their local securities regulator, which will consider its eligibility and refer it to the CSA regulatory sandbox if it provides genuine technological innovation in the securities industry. As part of the application process, CSA staff may request live environment testing, a business plan and demonstration of potential investor benefits (as well as how investor risks are minimized).

In addition, on February 22, 2017, the Ontario Securities Commission (OSC) announced the signature of a co-operation agreement to support innovative business with the United Kingdom Financial Conduct Authority (FCA). This agreement allows the two regulatory bodies to refer to one another innovative businesses seeking to operate in the other’s market.

For more information about our firm’s Fintech expertise, please contact the authors and see our Fintech group page.