Seeking protection in the fintech era
Financial technology companies, also known as “fintechs,” are sparking important changes across all sectors in the Canadian financial industry. These start-ups marry mobile, cloud and digital technologies with the provision of financial products and services. Their nimbleness challenges established financial institutions. Many Canadian banks are investing heavily to buy or build fintech that will keep them ahead of start- up “disruptors” such as online peer-to-peer lenders.
Ease, efficiency and “cool” factor are the bywords of fintech. But what about consumer protection?
New financial technologies can contribute positively to the financial-services industry while challenging today’s financial business models, services and markets. For consumers and businesses, this means greater choice in financial products and services. For regulatory bodies such as the one I lead, the Financial Consumer Agency of Canada ( FCAC), it means keeping up with emerging trends and promoting consumer protection even in unchartered waters where regulatory responsibility may be unclear or non-existent.
According to the consulting firm PricewaterhouseCoopers, there are currently about 80 fintechs in Canada. Although some will fail, this number is expected to climb quickly. Fintechs differ from Canada’s more traditional financial institutions in that they tend to only have an electronic presence, to rely heavily on technology, to specialize in specific banking functions, to be smaller and to offer cheaper and, some would argue, more innovative services. Fintech is exploding in personal and business lending, payments, fraud prevention, investment management and e-commerce.
Another very important distinction between fintechs and banks is that Canada’s federally regulated financial institutions operate under well- established rules defined in legislation, regulation and other provisions. That regulatory framework protects consumer rights and provides a complaints- handling process for consumers of financial products and services. They therefore know they are dealing with
FINTECH IS VERY MILLENNIAL — BUT WHO IS RESPONSIBLE FOR FIXING ERRORS?
a legitimate entity that — by law — must protect their rights and money. You can find a list of federally regulated financial institutions on FCAC’s website (ItPaysToKnow.gc.ca).
Many new fintechs are unregulated; they can operate in Canada without setting up base here. The resulting regulatory gap makes it all the more important that Canadian consumers understand how fintechs operate.
Fintech is fun, fast, very millennial — but when a transaction goes wrong, is the fintech responsible for fixing it? If they’re not responsible, who is? Is anyone? Can consumers get their issues resolved? Have consumers read their agreement with that fintech?
FCAC’s job is to ensure that federally regulated financial institutions continue to meet their consumer- protection responsibilities. I cannot over- emphasize the importance of understanding how you are — and are not — protected before you start using any financial product or service.
Where FCAC does not have the clear mandate to intervene on behalf of consumers, we will monitor emerging issues in the Canadian financial marketplace and seek to clarify the potential risks for consumers and contribute to essential policy discussions. We have already begun to focus on fintech trends and their impact on Canadians.
Over the coming months, we plan to engage with the financial industry, federal and provincial regulators and other government departments on these issues. We will seek to better understand how financial institutions interact with fintechs to determine how we can best protect consumers. Finally, in keeping with our consumer education mandate, we will expand our online material to address fintech, providing consumers with the information they need to make informed financial choices.
The fintech explosion will continue to influence the way financial products and services are delivered and purchased. As regulators, we must adapt to these marketplace shifts to ensure Canadian consumers continue to benefit from the protections to which they are entitled.