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Financial Technology & Innovation

Financial technology (fintech) is an industry where evolution happens quickly and regularly. We use the term ‘fintech’ to describe a range of business models and emerging technologies that bring technological innovation to the financial sector. Innovations can significantly impact how businesses operate. As businesses evolve, we encourage management to actively seek out guidance on how the operational and fundraising activities of the business fit within existing regulations, including the securities regulatory framework.

The BCSC has issued guidance and produced resources to help fintech companies that are operating, or planning to operate in British Columbia (B.C.). On this page, you can learn more about how securities regulation intersects with the fintech industry. We will update this page regularly as additional guidance becomes available.

The BCSC has historically been flexible and innovative in its approach to securities regulation. We look forward to continuing to work with industry to ensure that our approach to securities regulation continues to evolve alongside a changing industry.

Securities Laws Fundamentals

In Canada, all trading of securities is subject to legal obligations. There are two basic requirements underlying our securities laws:

  1. Prospectus Requirement: Every person who distributes previously unissued securities (such as bonds or shares) must file and obtain a receipt for a prospectus with the Commission. A prospectus is a comprehensive document that discloses all material information about the issuer and the securities being sold.
  2. Registration Requirement: Every person who is in the business of trading (selling) securities, or in the business of advising another person on the purchase or sale of securities, must be registered with the Commission. If a person is registered then they must comply with certain obligations. For example, registered firms are subject to requirements relating to handling conflicts of interest and assessing the suitability of investments for their clients.

These requirements are subject to certain exemptions.

Generally, the prospectus requirement relates to capital raising activities by businesses, while the registration requirement relates to conduct that creates a business of trading or advising in securities. A company’s activities may trigger one, both, or neither of these requirements.

For an example of how the prospectus and registration requirements apply to a business model, please see our guides prepared for start-up crowdfunding issuers and portals. In that case:

    • businesses raising capital using a start-up crowdfunding offering trigger the prospectus requirement, but may be able to rely on the prospectus exemption related to start-up crowdfunding; and
    • businesses that operate portals that facilitate start-up crowdfunding offerings trigger the registration requirement, but may be able to rely on the registration exemption related to start-up crowdfunding.

The start-up crowdfunding example is specific only to the business models described in the guides. In considering whether a given business model triggers securities law requirements, you should consider seeking legal advice.

Fintech Business Models

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The business models listed below are examples of the types of fintech businesses that we regulate. We recognize the evolving nature of fintech in B.C., and the BCSC has a long-standing tradition of consulting with industry and working to develop regulatory solutions that support entrepreneurs and companies in launching new ways of conducting business.

If you have further questions on how your business fits within the current regulatory regime, please contact our Fintech & Innovation Team (FIT) using the details below or through our Inquiries Group.

The term “robo-advising” (also known as "online advising") describes firms that provide online discretionary portfolio management. These firms are in the business of advising clients on the purchase and sale of investments. As a result, we require these firms to be registered as advisors.

The majority of robo-advisors are currently registered as portfolio managers. However, some robo-advisors are registered as investment dealers with the Investment Industry Regulatory Organization of Canada (IIROC). Robo-advisors can select either mode of registration when operating their business.

There are several characteristics that are common among robo-advisors. They are:
  1. an online know-your-client questionnaire to collect client information;
  2. client communications by phone, text message, email or video chat; and
  3. using low-cost passive exchange traded funds or index mutual funds in client portfolios.
Additionally, robo-advisors may use artificial intelligence, including machine learning, in other ways to streamline or enhance their operations. Dependent on how these technologies are employed, their use may trigger securities law considerations.

Types of Robo-Advisors
  1. Always Call: In the “always-call” model, the robo-advisors will call the prospective client during the account opening process to ensure that the information provided by clients is accurate, and to double-check that the portfolio recommendations made by the robo-advisor’s algorithm is in fact suitable for the client.
  2. No Call: In the “no-call” model, the firm will only call the client if there is an issue or inconsistency in the information that the client provided in the online questionnaire.
In either model, the clients are always free to contact the online advisor if they want.

This Canadian Securities Administrators Staff Notice 31-342 discusses how securities laws apply to online advisors.

Online Lenders
Online lenders primarily use internet-based platforms to assess the creditworthiness of potential borrowers, approve and advance loans, and administer those loans.

Online lenders have two main streams to their business:
  1. Loan-Funding: This stream relates to how online lenders obtain the funds that they lend to borrowers.
  2. Lending: This stream relates to how online lenders lend money to borrowers.
Depending on how an online lender structures its loan-funding operations, that online lender may be in the business of trading, and may be required to register as a dealer or find an exemption from the dealer registration requirement that it can rely on. Additionally, the online lender will trigger the prospectus requirement if it is distributing securities to raise capital (including for loan-funding).

To get a better sense of whether you may be in the business of trading, please review Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations to national registration regime (in particular, see section 1.3 – Fundamental concepts).

Crowdfunding Portals
Crowdfunding is a process through which an individual or a business can raise small amounts of money from a large number of people, typically through the internet. The objective is to raise sufficient funds in order to carry out a specific project. There are different types of crowdfunding, such as by donation, pre-selling of products, and securities crowdfunding.

Securities crowdfunding offerings are facilitated through a funding portal. A funding portal lists investment opportunities and facilitates the payment of the purchase price from the investor to the issuer. A securities crowdfunding portal operating in B.C. needs to be registered with the Commission because we view these types of activity as being in the business of trading. However, in certain circumstances, a person seeking to operate a securities crowdfunding portal in B.C. may rely on an exemption from the dealer registration requirement. As well, the company looking to raise capital using a securities crowdfunding offering may rely on an exemption from the crowdfunding prospectus requirement.

For more information on:
    • the registration requirements and registration exemptions specifically related to start-up crowdfunding, take a look at our Guide for Funding Portals.
    • operating a crowdfunding portal using prospectus exemptions other than start-up crowdfunding, please contact us using the contact information at the bottom of this page.
    • capital raising using the prospectus exemption related to start-up crowdfunding, take a look at our Guide for Issuers (conducting a securities crowdfunding offering).

Crypto-asset Trading Platforms
Crypto-asset trading primarily occurs through online trading platforms, some of which are commonly known as “cryptocurrency exchanges”. Crypto-asset trading platforms may trigger securities laws both by how they trade crypto-assets, and also by what crypto-assets the platform facilitates trading in. The fact that a platform is commonly known as an “exchange” does not mean that it is authorized under securities laws to operate as an exchange, and many online trading platforms today are not authorized under securities laws.
Crypto-asset trading platforms that facilitate trades in securities in Canada are required to be authorized by a provincial or territorial securities regulator. Depending on the platform’s business model, it may require authorization as one or more of a dealer, marketplace or clearing agency. Additional information on when a crypto-asset trading platform’s activities are subject to securities laws is found in CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets

Distributed Ledger Technology (DLT) and Blockchain
Many different fintech business models are utilizing DLT, including public or permissioned blockchains, in their operations. Securities laws may apply to such a business model, particularly if the business is operating as a marketplace participant or creating, offering, trading, or advising in securities or derivatives. If you have an innovative business model that uses DLT and are seeking guidance on the application of securities laws to your model, please contact the Fintech & Innovation Team using the contact information at the bottom of this page.

Regulatory Technology

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Regulatory technology, commonly known as “regtech”, applies to new technology developed to address regulatory requirements. Firms may use regtech to streamline operations and decrease compliance costs.

Dependent on how regtech is used to meet regulatory requirements, it may trigger securities law considerations. If you are a regtech provider and are seeking guidance on how securities laws may apply to you, please contact the Fintech & Innovation Team for further information.

Crypto-Asset Offerings

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Crypto-asset offerings can provide new opportunities for businesses to raise capital and for purchasers to access a broader range of investments. In many cases, these offerings are structured as initial coin offerings (ICOs) or initial token offerings (ITOs).

These offerings can raise investor protection concerns due to issues around volatility, transparency, valuation, custody and liquidity, as well as the use of unregulated cryptocurrency exchanges. Investors may be harmed by unethical practices or illegal schemes, and may not understand the properties of the products that they are purchasing.

Depending on the facts and circumstances of each crypto-asset offering, the coins or tokens that are offered or sold may be securities. Here are some of the factors we consider in making that determination:

  1. Is money being invested?
  2. Is the purchaser looking to profit?
  3. Do the profits come from the efforts of someone else, like the business issuing the coins?
  4. Putting aside the details of how the coin is structured, does it fundamentally look like an investment?

If the coins or tokens being sold are securities, then securities laws in B.C. will apply if the person or company selling the securities is conducting business from within B.C. or if there are B.C. investors.

The following video highlights various securities law considerations with respect to ICOs and ITOs.

Additional information on crypto-asset offerings is also in CSA Staff Notice 46-307 Cryptocurrency Offerings and CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens.

Canadian Securities Administrators (CSA) Regulatory Sandbox

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The BCSC is a member of the Canadian Securities Administrators (CSA). The CSA Regulatory Sandbox is an initiative to support fintech businesses looking to offer innovative products, services and applications in Canada. Formally launched in February 2017, the CSA Regulatory Sandbox facilitates tests of novel and innovative business models in order to better understand how fintech innovations can affect capital markets and encourage appropriate capital markets innovation.

B.C. firms interested in applying to the CSA Regulatory Sandbox must first make their application to BCSC staff. Further information about the application process can be found here.

For more information, please contact our Fintech & Innovation Team (FIT) at fit@bcsc.bc.ca. Learn more about our FIT here.

Global Financial Innovation Network (GFIN)

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The Global Financial Innovation Network (GFIN) was formally launched in January 2019 by an international group of financial regulators and related organizations. The BCSC is a member of GFIN. GFIN is a network of organizations committed to supporting financial innovation in the interests of consumers. GFIN seeks to provide an efficient way for innovative firms to interact with regulators across jurisdictions, and to help them navigate between countries as they look to scale new ideas. This includes a pilot test trial for firms wishing to test innovative products, services or business models across more than one jurisdiction.

GFIN has three primary functions:
  1. To act as a network of regulators to collaborate and share experience of innovation in respective markets, including emerging technologies and business models, and to provide accessible regulatory contact information for firms;
  2. To provide a forum for joint regtech work and collaborative knowledge sharing/lessons learned; and
  3. To provide firms with an environment in which to trial cross-border solutions.
GFIN Resources

BCSC Fintech Advisory Forum

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The BCSC Fintech Advisory Forum is a forum to discuss fintech innovations and related regulatory issues. Comprised of fintech industry professionals and experts, the Forum advises BCSC staff on fintech trends and developments, including opportunities and risks. As well, the Forum provides input on fintech issues in the securities industry and related securities law issues.

Serving on the Forum is voluntary, and members are invited to serve for two-year terms. Members are selected based on their experience in current and developing areas of fintech. Knowledge of B.C. capital markets, technological expertise, and familiarity with issues faced by fintech companies are also desired assets.

Further details about the Forum can be found in BC Notice 2020/01. If you have further inquiries, please contact the BCSC’s Fintech & Innovation Team at FIT@bcsc.bc.ca. We FIT staff are currently reviewing applications for the Forum’s inaugural membership, and plan to announce our members when they have been selected.

BCSC Consultations on Fintech and Innovation

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Interest in fintech has increased in recent years, and the BCSC is staying at the forefront of developments. Our regulatory approach to fintech is a supportive one, which facilitates new, more efficient paradigms while ensuring continued protection to investors, and emphasizing appropriate collaboration between industry and regulators.

To facilitate our regulatory approach, we consult regularly with local stakeholders about fintech developments and innovations in order to further understand novel business models. Some examples of this include:

    • Our 2017 fintech outreach, which was geared towards understanding the challenges faced by the crowdfunding, robo-advising, and online lending sectors;
    • Our 2018 fintech notice and request for comment geared towards gathering input on potential ways to clarify and modernize B.C. securities laws. The notice summarized consultation activities in five key areas: crowdfunding and online lending, online advisers, crypto-asset funds, initial coin offering, and fintech regulation in the future;
    • Our 2018 and 2019 consultations with crypto-asset trading platforms, to understand their operations, and to assist in formulating regulation tailored for their business models. For background information on some of the issues raised in these consultations, see CSA Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms.

Outside of formal consultations, the BCSC has received numerous comments on securities regulation through outreach activities conducted by our Fintech & Innovation Team, which we use to inform our regulatory approach going forward.

We conduct local or national consultations on a periodic basis. To stay informed of consultations relevant to fintech and innovation, be sure to check our Fintech and Innovation page regularly. To stay up-to-date on all BCSC news, we encourage you to subscribe to our email notifications list. A subscription to this list will provide you with information on enforcement matters, BCSC events, news releases, and policy publications. We also post regular updates to our social media pages. To learn more about the BC Securities Commission, visit our LinkedIn and Twitter pages.

BCSC Fintech & Innovation Team (FIT)

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Our Fintech & Innovation Team (FIT) can answer questions regarding regulatory issues related to your business. FIT actively engages in outreach to the B.C. fintech community, and is interested in hearing from businesses, stakeholders, and entrepreneurs.

You can email the team at fit@bcsc.bc.ca or contact us through BCSC Inquiries at 604-899-6854 or 1-800-373-6393 (toll free).