Regulating Fintech in Canada and the United States: Comparison, Challenges and Opportunities (2020)

Abstract

The rise of fintech has attracted increased attention from investors, entrepreneurs, existing financial-sector participants and regulators. Fintech has many potential benefits and it could transform banking, lending, payments, investing and other financial services through the internet, smartphones, artificial intelligence, blockchain and cryptocurrencies, and many other current and future digital technologies. Such benefits include lower costs, an enhanced scope of products and services, and the possibility of reaching and offering previously under-served customers greater credit and financial services.

Policy makers in Canada and the U.S. should encourage these positive developments, foster innovation and competition, and reduce barriers to entry, while ensuring adequate safeguards are established for the stability of the financial system and necessary consumer protections are in place. The market environment and regulatory approaches in Canada and the U.S. are similar but not uniform. Each jurisdiction faces different challenges and opportunities. The speed and complexity that this new wave of fintech has expanded throughout North America and the world, in just a few years, has created regulatory challenges for authorities in the U.S. and Canada. Fintech has many potential risks. If this revolution is not managed well, the results could be serious, including the risk of destabilizing the financial system.

In both jurisdictions, policy makers must be mindful of fintech’s unique risk propositions and its benefits; both when it’s adopted internally by existing financial institutions under regulatory oversight, and when fintech originates from new, consumer-facing market entrants. They must also ensure that regulatory efforts are coordinated with international best-practices and be mindful of any potential unintended effects of regulatory action given an increasingly complex and interconnected financial market.

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

JEL Classification: K22