Regulating Fintech in Canada and the United States: Comparison, Challenges and Opportunities

Abstract

This article compares the regulatory frameworks, challenges and opportunities in financial technology ("fintech") in Canada and the United States. Here fintech is explored as a post global financial crisis ("GFC") phenomenon by surveying regulatory adaptations such as the use of principle-based supervisory regimes and "sandboxes" across multiple financial sectors including fintech banking, cryptocurrency (cryptocurrency as money, cryptocurrency funds and derivatives, and initial coin offerings), fintech credit (peer-to-peer lending), payments, algorithmic wealth management (robo-advisors) and financial account aggregators. The article also discusses the status of large-scale blockchain implementation projects in finance, the emergence of "regtech," international regulatory coordination efforts, and future trends. Fintech presents opportunities - like lower costs, enhanced financial products and services, greater credit and financial inclusion – and new risks and challenges for regulators, such as creating laws that accurately capture new technology and keeping pace with constantly evolving innovations. Regulators must balance encouraging innovation and competition with effective risk management and supervision. The current regulatory landscape in both jurisdictions is widely fragmented with multiple agency oversight. This creates entry frictions for new firms that could stifle innovation long term. The use of principle-based regimes like sandboxes helps to promote competition and balance risk; however, sandboxes aren’t a panacea and their externalities should be studied, as well as the extent fintech poses systemic risks, and optimal design principles for financial market regulation in light of continuing market and product complexity.

Keywords: fintech, fintech regulation, financial technology, cryptocurrency, bitcoin, fintech credit, marketplace lending, robo-advisor, open banking, special purpose charter, fintech banking, ICOs

JEL Classification: K22