A fast-growing fintech sector, coupled with robust research into artificial intelligence (AI), has Toronto ranking as one of the world’s leading tech innovation hubs, according to a new report from KPMG LLP.

The Global Technology Innovation report, which is based partly on a survey of 750 global tech industry leaders, finds that the United States. and China continue to lead the world for tech innovation, followed by India, Japan, and the United Kingdom.

In terms of individual cities, Shanghai is seen as the leading centre for innovation over the next three to four years, followed by Tokyo, London, and New York. Toronto ranks in 12th place, tied with Boston and Chicago.

Toronto is currently home to about 4,000 active startup companies, the report notes, and it points to fintech and AI as the city’s primary strengths.

Nationally, Canada “punches above its weight” in fintech, the report says, and this is expected to grow, particularly as the big banks and insurers are pursuing their own fintech ventures, or seeking joint ventures with startups, amid the disruption of their traditional businesses.

Additionally, recent investments from U.S. financial institutions into Canadian fintechs is helping to raise the sector’s profile globally, the report says.

“Toronto has been rapidly grabbing the world’s attention as a destination for financial and intellectual capital in technology innovation,” says Anuj Madan, national industry leader for technology, media and telecommunications at KPMG in Canada, in a statement.

“Only a couple of years ago, Toronto likely didn’t come up in conversations as a go-to global destination for innovation. But smart and early investments in artificial intelligence and fintech, coupled with a diverse workforce, have positioned the city as an emerging global centre of influence in machine and deep learning, setting the stage for Industry 4.0,” Madan adds.

The report highlights a couple of possible challenges to Toronto’s growth prospects however. For one, it says that Canada tends not to produce large, global tech firms, because startup founders typically sell out at a relatively early stage (once revenues reach about US$8 million). Canadian entrepreneurs need to overcome this “build to flip” mentality if Canada is to produce its own homegrown tech titans, the report says.

A second challenge is the renegotiation of NAFTA, which impact fintechs in particular. “Issues are arising over pressure for relaxed regulations on cross-border data flows and required use of local computing facilities,” the report says.