To small investment firms that have been struggling for years with an ever-growing compliance burden, it’s galling to see regulators rushing to accommodate their fledgling fintech rivals. But the incumbents should be cheering the upstarts, who will lead the way in shaking up both the business and the regulatory landscape.
The Canadian Securities Administrators (CSA) have formally established a “regulatory sandbox” that will allow firms to test innovative products, services and business models without fully meeting the existing regulatory requirements (although they will face some restrictions designed to ensure investor protection).
The Ontario Securities Commission (OSC), has signed agreements with regulators in the U.K. and Australia, pledging to help fintech firms realize their global ambitions. And various regulators are stepping up their efforts to engage with the fintech community.
For veteran firms – particularly smaller players that have complained for years that the regulators are oblivious to the impact of their rules and are loading them up with needless requirements – the apparent fondness for fintechs must be particularly maddening. But, while the optics may be aggravating, the reality is that a fintech revolution will benefit the entire financial services sector, including the incumbents.
Many fintechs are intent on changing the way the investment business works by eliminating as much of the friction as possible in consumer experiences. To do so, they must first disrupt the industry’s regulatory model, which is often the source of much of this friction in the first place.
To the extent that they challenge existing regulatory expectations – and can demonstrate that there are easier, cheaper, more efficient ways to do things – the more likely it is that regulators can be persuaded to step back from detailed, prescriptive requirements that make up so much of the existing regulatory burden.
Absent a fundamental catalyst for change, there’s little incentive for regulators to strip away layers of existing rules. But, if fintechs are to succeed in making the industry much more user-friendly, and regulators are committed to their cause, the initiative represents the industry’s best hope for a dramatic transformation in the rules that all firms face.
© 2017 Investment Executive. All rights reserved.
Quebec to drop withdrawal limit for LIFs in 2025
Move will give clients more flexibility for retirement income and tax planning