Category Archives: Research

The forces of change are trumping banks and regulators


The Globe and Mail | and | May 15, 2018

Patricia Meredith and James L. Darroch are the authors of Stumbling Giants: Transforming Canada’s Banks for the Information Age, the winner of the 2017/18 Donner Prize.

Most businesses fail to respond to the challenge of disruptive technology. But disruptive technologies, including mobile devices, cloud computing, artificial intelligence, blockchain and social networking, are transforming financial services.

So it is perhaps not surprising that, far from embracing creative destruction, the protected oligopoly of Canadian banks and their counterparts in many other parts of the world have chosen to lobby in favour of the status quo. The response of global financial regulators, in the form of Basel II and III, has reinforced the old business model, making it more difficult for banks to adapt. Unfortunately, as we describe in our book, Stumbling Giants: Transforming Canada’s Banks for the Information Age, the forces of change are far more powerful than the bankers and regulators are.

As Bill Gates said more than 20 years ago: “We will always need banking, we won’t always need banks.”

The functions of banking – lending, investing and paying – are necessary in the information age. But how these functions are performed looks very different. Financial-technology companies (fintechs) – such as Amazon, PayPal, Alibaba, Apple, Google and myriad small players including robo-advisers, lenders and payments providers – are using technology to create new and better financial services for both consumers and businesses. They operate in all parts of financial management, whether that is tracking overall spending, applying for a loan or optimizing investment strategies. These technology companies compete directly with traditional banks and, in many respects, have taken them by surprise.

Ant Financial Services (part of the Alibaba Group) uses information from its payment-processing platform to develop cash flow forecasts and assess the riskiness of micro, small and medium-sized businesses. It tracks performance in real time and increases credit lines if the business is increasing faster than expected and accelerates collections if it is not. Ant’s loan losses are significantly lower than those of traditional banks. It’s “Just Spend” securitized consumer loan product helps consumers take that vacation they have been dreaming about. Amazon One Click let’s me buy that item I have been eyeing up online without having to perform a payment transaction. PayPal for Business offers web payments, online invoicing and other services to help me run my online business better.

To support the growth of fintech companies in Canada, the federal government must encourage innovation and increase competition. As Payments Canada rolls out our new real-time payments system, the government should accept the Competition Bureau’s recommendation and enact legislation to open access to qualified non-bank participants. It must implement legislation similar to laws already in place in Britain, the European Union and Australia, making it clear who owns the data stored in warehouses (the customer) and who has access to it (all competitors with the owners’ permission). This would make information – the raw materials for modern financial services – available to all competitors.

Check out:  NCFA: Canada Needs a Harmonized Securities Environment as Current Provincial Approach is a Fintech Innovation Killer

To support the growth of micro, small and medium-sized enterprises (SMEs) the government should consider giving the Business Development Bank of Canada the mandate to develop securitized lending. Using artificial intelligence and sophisticated risk-pricing algorithms to adjudicate loans based on real-time transaction data and future cash flow forecasting has proven much more reliable than traditional bank lending, based on historical returns and secured assets.

Innovation in financial services is urgent. Canada is falling further and further behind. Countries such as China, India and the United States are moving rapidly to establish e-commerce platforms with integrated financial technology companies. Fintechs are key drivers of the financial ecosystem of the future. Instead of wasting time revising the Bank Act to preserve the status quo, our policy makers should focus on legislation to ensure access to infrastructure and data for innovative new entrants and access to financing for the SMEs that represent Canada’s entry into the 21st century information economy.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with cryptocurrency, blockchain, crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders globally. NCFA Canada provides education, research, industry stewardship, services, and networking opportunities to over 1700+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry.  Join Canada's Fintech & Funding Community today FREE!  Or become a contributing member and get perks. For more information, please visit:



An investor’s guide to robo-advisors 2018


MoneySense | David Aston | Apr 29, 2018

Find out which robo-advisor is right for you —and how to pair your robo with a real human

When robo-advisors first burst on the scene a few years ago, they threatened to replace human advisors in situations where not much human help was needed. If you wanted more extensive human advice, you still had to pay up to go with a conventional advisor.

Now there’s a formidable new trend emerging.  Increasingly, robo-advisors are teaming up with human advisors in new and creative ways to provide “hybrid” combinations that achieve the best of both worlds.  You get easy digital access and efficiency combined with whatever level of human expertise you need.  You can expect to pay less in fees compared to amounts charged by conventional advisors. But often you also get more value from the advice because it can be concentrated where you need it most.

“Hybrid is where the future is going and everyone is converging into it,” says Kendra Thompson, global lead for wealth management at consultancy firm Accenture.  Of course, the trend is still in its early stages and you will only see hints of it in today’s robo-advisor offerings. (See the accompanying comparison tool below Which Robo-Advisor is Right for You Now for a guide to current offerings from seven leading robo-advisors.)

See:  Introducing the Convergence Ecosystem

It’s easy to get the misleading impression that robo-advisors are antagonistic rivals to human advisors.  Fueling that impression are hard-hitting ads by robo-advisor Questrade Portfolio IQ, where everyday Canadian investors grill their sleazy-looking conventional advisors about why their fees are so high and their returns are so low.  But it’s clear that algorithms won’t replace quality human advice in more complex or nuanced situations, at least any time soon.

If you need a comprehensive financial plan or want help coping with a market meltdown,  you’re likely to want to turn to a trusted human advisor with high levels of financial expertise but also human qualities like communication skills and empathy.

Key to the hybrid partnership is freeing up good advisors to provide value-added advice while using technology to: provide transparent online account access across multiple devices, streamline administration, and take care of routine transactions like rebalancing.  Most robo-advisors recognize their own limitations and see good human advisors as potential partners. “We think advisors who are delivering value will continue to thrive,” says Wealthsimple CEO Michael Katchen.

Humanizing the robos

The hybrid trend has several aspects.  Firstly, some robo-advisors themselves are adding more human services like basic financial planning and dedicated human advisors. But the larger, long-term trend is robo-advisors and other fintech companies teaming up with outside financial planners and conventional advisory firms in just about every segment of the investment advice business.

Of course, the trend is still in its early days and much of the activity is behind the scenes. Nonetheless, Thompson points to a flurry of deals and huge sums of money that the major financial institutions are pouring into this area to show that the trend is unmistakable.

“The type of transformation that is going on is unprecedented,” says Thompson.

“The dialogue of robos vs. humans or old vs. new really misses the richness of what’s going on, which is an entire industry re-inventing itself to be more modern, more in line with what investors want to pay for, and to be more in line with the consumer experiences of today.”

In one of the simpler forms of hybrid collaborations, independent financial planners are referring investments to a robo-advisor while providing over-all financial planning services.  Typically the financial planner has online digital “dashboard” access to the account and incorporates portfolio information into their financial plans.

Also:  This man has made more money trading cryptokitties than investing in his IRA

While the robo-advisor retains full responsibility for managing the investments and matching the client to the appropriate portfolio, the financial planner might fill the role of trusted human advisor who can prepare an in-depth financial plan but also counsel clients about all aspects of their finances.  That might include, for example, talking clients through their jitters during a market correction.   The robo-advisor typically discounts their rates compared to what they charge regular clients because of reduced need for the robo-advisor’s services.

With client permission, the robo-advisor may draw the planner’s fees from the robo-advisor investment account and remit them to the planner.  Already hundreds of financial planners are working with robo-advisors in this way or something similar.  (We’ll describe an example in a minute.)

But there is much more to the hybrid trend than that.  At a more complex but profound level, robo-advisors and other fintech companies are providing much of the technology to help major financial institutions transform their conventional advice businesses.  These partnerships range from situations where robo-advisors provide their complete investment platform, process, portfolio design, and brand to other “white label” situations where the robo-advisor only provides the underlying technology and platform and the conventional financial institution partner does the rest.   Because these transformations are so large and complex, they will take time and often start small with pilot programs in niche areas of the business, but no one doubts their potential.

“Our vision is to become the platform of choice,” says Randy Cass, CEO of Nest Wealth, a robo-advisor in which National Bank Financial has a major investment.  Nest Wealth is partnering with National Bank Financial to introduce hybrid capabilities at the bank and has also cut hybrid-type deals with three other conventional advisory firms.

Meanwhile, the Bank of Montreal’s BMO SmartFolio robo-advisor offering is available alongside full-service brokerage accounts in its BMO Nesbitt Burns division.  In the right client situation, BMO SmartFolio allows brokers to spend less time on administration and reviewing client accounts, and more time on value-added activities like financial planning and estate planning, says Silvio Stroescu, head of digital investing at BMO Financial Group.

And while Wealthsimple hasn’t publicly specified how it might help transform Power Financial Corp.’s diversified financial services empire, the fact that Power Financial has acquired a controlling stake in Wealthsimple at least indicates interest if not intent.  Other robo-advisors such as Invisor, Justwealth and WealthBar have also announced hybrid deals of varying size and significance.

Not just for millennials

Meanwhile the robo-advisor’s traditional direct-to-consumer offering continues to evolve.  Many of the features that were novel a few years ago are more commonplace today.  That includes:

  • digital access and communication through multiple devices;

  • construction of largely passive portfolios using low-cost ETFs;

  • online questionnaires that match new clients to the most appropriate portfolios for their circumstances;

  • paperless account initiation or “onboarding” process;

  • automated rebalancing of portfolios; and

  • availability (in most cases) of highly qualified portfolio managers working to a fiduciary standard to step in and provide limited human advice when needed.

Robo-advisors were originally thought to appeal particularly to millennials because of the demographic’s early embrace of digital technology, but the focus has shifted more towards older investors with larger balances.  While some robo-advisors have gone after an older clientel from the get-go, others have more recently added features that are likely to have particular appeal to this group, like basic financial planning, tax-loss selling and portfolio managers dedicated to specific clients.

Check out:


Wealthsimple is the industry market share leader and millennial robo-advisor of choice with its cool marketing vibe, youthful executives, and socially responsible investing (SRI) options.  But it introduced Wealthsimple Black for clients with balances over $100,000, providing lower fees, tax-loss harvesting and basic financial planning.  CEO Katchen says that Wealthsimple Black is the fastest growing segment of its business and that the firm has seen its average over-all client age shift to 34 from 29 a few years ago.  The company has more than 80 per cent of Canadian robo-advisor users as clients, according to Strategic Insights data cited by the company.  It has also expanded to the U.S. and Britain. Wealthsimple announced in March that it had reached $2 billion in client assets and 65,000 clients, with the “majority” in Canada.  It is the only Canadian robo-advisor to release client figures.


WealthBar has always designed portfolios to generate cash flow and reduce volatily, features of particular appeal to older investors.  But it has added services like dedicated advisors and basic financial planning reviews by certified financial planners. Its average client age now is about 48, says WealthBar CEO Tea Nicola.  In addition to ETF-based portfolios, WealthBar also offers pooled funds in specialized asset classes like real estate, a product usually only available to large account clients at conventional advisors.  “We democratize a high net wealth way of investing,” says Nicola.


Justwealth strives to appeal to older investors with larger balances by taking a relatively sophisticated approach to managing portfolios.  Instead of providing six to 10 set portfolio options, which is typical, it provides 65.  That allows it, for example, to offer distinct non-registered portfolios which use tax-advantaged ETFs and emphasize asset classes with relatively favorable tax treatment.  Furthermore, it provides personalized (rather than robotic) tax loss harvesting.  Justwealth also offers RESP target date portfolios that become more conservative as the beneficiary gets closer to needing the funds in university.  Justwealth’s average client age is the mid-40s, says President Andrew Kirkland.


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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:


Guide to Canadian cryptocurrency taxation


Koi Research Group | Last updated March 26, 2018

For most Canadians who do not trade for a living, you are expected to pay tax as a capital gain. If you spend a significant amount of time trading and analyzing the markets without holding long-term, you may be required to file your gains as income.

Currently, there are no distinctions and all cryptoassets are treated equally in regard to profits made from the activity. In the future we may see distinctions between cryptocurrencies, crypto-commodities, cryptosecurities and other digital tokens when it comes to tax.

The Swiss regulatory authorities released differentiations on types of tokens, defining “payment” “asset” and “utility” tokens. We can likely expect a similar classification from the CRA in 2018.  Since cryptocurrencies are not considered a legal currency in Canada, all payments made using bitcoin or other cryptocurrencies are considered barter transactions and the tax implications are derived from the fair market value of the barter.

Although mining may be viewed as a hobby, the CRA considers any profit-making activity a business and as such, the hobbyist miner should claim the miner and all associated costs as an expense and claim the net income as personal income.

Income vs Capital Gains

The central issue up for debate is whether to consider cryptocurrency profit/loss as income, or as capital gains. There is no black and white answer to this; it depends if you consider yourself a short-term trader, or a long-term investor. If you fall under the category of trader, you will likely be taxing your cryptocurrency gains as income, whereas a long run investor will be claiming their tax as capital gains.

To evaluate if you are a short-term trader who would pay taxes as income, it is best to ask yourself if you fall under the factors below from

  • frequent transactions, extensive buying and selling of securities
  • short periods of ownership
  • some knowledge of or experience in the securities markets
  • security transactions form a part of the taxpayer’s ordinary business
  • a substantial portion of the taxpayer’s time is spent studying markets and investigating potential securities purchases
  • security purchases are financed primarily with margin or debt
  • the taxpayer has advertised or otherwise made it known that he is willing to purchase securities
  • securities purchased are speculative in nature or do not pay dividends

See:  THE CRA’S Position On Cryptocurrency: Income Tax Implications

Based off these factors that would classify a trader, many of us likely do not fall into this category, and can instead file our taxes as capital gains. With this in mind, lets run over a quick example of how the CRA treats capital gains tax.

Capital Gains Tax

In short, 50% of your capital gains are taxed, and are taxed at your marginal income tax rate.

For example, let’s say you bought for $500, sold at $600, and now you have $100 of capital gains to declare. For 2018, your first $46,605 in income is taxed at 15%, so for this example, you would pay:

($100*50%)*15% = $50 * 15% = $7.5

In this scenario you would keep $92.5 of that $100 gain and report $7.5 in capital gains.

Unrealized Gains

What if your gains are held in cryptocurrency and you know the dollar value because an app like Blockfolio or Delta calculates it for you?

In general, any gains you have made but have not withdrawn only exist as “paper gains.” You do not have to report unrealized gains. Whether it is foreign currency, stocks, or cryptocurrency gains that you have not yet cashed, you do not have to report these gains because you have no profit – a form of taxable income – to report. Further reading can be found starting on page 5 this Canadian Tax Foundation report.

What do I tax?

You should organize and track all of your withdrawals from cryptocurrency/bitcoin back into fiat. You should be able to find this information in your trade history on the cryptocurrency exchange you use. Based on what is written above, these are the amounts you will be paying capital gains tax on.

What about claiming it as foreign currency?

What if your cryptocurrency gains have exceeded $100,000? There have been some mentions online that it is possible to consider cryptocurrency as a foreign currency, which you would have to declare as foreign currency/property if it exceeded $100,000. This approach does not need to be pursued by investors for two reasons. Firstly, your tax return will actually ask if the cost of that foreign property was over $100,000 or not. Many investors have invested less than $100,000 in the cryptocurrency space, which immediately makes this irrelevant for them. Secondly, since cryptocurrency is not tied to any government whatsoever, it does not meet the criteria of “foreign property” and we feel that making an argument for it holds less credibility and backing than filing your taxes as capital gains.

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Download PDF guide: Canadian crypto tax document Koi_Metrics 03.26

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:


Fintech As a Pathway to Financial Inclusion? The Case of China


Microfinance Gateway | Douglas Randall & Jennifer Chien| Apr 2018

Two Chinese fintech models illustrate the opportunities and risks involved

Douglas Randall is a Financial Sector Specialist and Jennifer Chien is a Senior Financial Sector Specialist in the Finance, Competitiveness, and Innovation Global Practice, World Bank Group. 

The opportunities and risks of fintech are front of mind for financial sector policymakers these days, and many are looking to China for inspiration and guidance. The Chinese experience has undoubtedly demonstrated that fintech – i.e. new, technology-driven financial sector players - can transform how consumers make payments, save, borrow, invest, and insure themselves against risk. But this experience also comes with caveats and cautionary tales. These topics, along with many others, are discussed at length in a new report on China’s financial inclusion experience co-authored by the World Bank and the People’s Bank of China.

The report explores two fintech models in China that serve to illustrate both the opportunities and risks of fintech: (1) nonbank digital payment providers, and (2) peer-to-peer (P2P) lending platforms.

Nonbank Digital Payment Providers

Alibaba and Tencent were originally established as an e-commerce and social network company, respectively. But both are now major players in the retail financial services market. This transformation began with the integration of payments functionalities into their existing online networks. Alibaba’s first foray into financial products was Alipay, launched in 2004 to facilitate transactions and build trust between buyers and sellers on Taobao, Alibaba’s online marketplace. Similarly, the integration of a payments product into Tencent’s social media platforms WeChat and QQ has proven to be a massively successful model that allows users to blend social and financial interactions, including sending gifts or remittances.

Fast forward a decade, and hundreds of millions of customers now use payment services offered by nonbank digital providers like Alipay and Tenpay, as well as a broader range of financial products offered by Ant Financial, a group of companies of which Alipay is a member. Alibaba and Tencent were leaders in opening up digital payments to nonbank players. The result is a dramatic evolution towards a cashless society in many major urban areas in China. The Chinese experience has shown that online, network-based business models can facilitate the design and delivery of innovative financial products by leveraging technology, network effects, big data, and cross-subsidization opportunities.

See: China’s Alibaba bringing online payment platform AliPay to Canada

But while fintech has certainly improved the availability, convenience, and affordability of financial products for consumers within these large online ecosystems, there is less consensus on the degree to which nonbank digital payment providers have reached unbanked, "last mile" consumers in China. Consumers who do not use social media or e-commerce platforms - disproportionately the poor, rural, and elderly - may receive limited financial inclusion benefits from such models. The scarcity of robust data and analysis poses a further challenge in determining the degree to which fintech providers reach "last mile" consumers.

In fact, much of the progress achieved in reaching the “last mile” with basic transactional products has been accomplished by traditional financial service providers. For example, China has nearly one million third-party retail agents operating on behalf of a financial service provider, with many agents operating in villages not otherwise covered by bank branches. Less than 5% of these agents have been established by nonbank digital payment providers. The channeling of social transfers through bank cards and via agents has also been a significant contributor in reaching previously excluded adults.

P2P Platforms

In the credit space, fintech providers have similarly disrupted the status quo. New digital credit providers have emerged, including internet banks, online microcredit companies (MCCs), and P2P platforms. In particular, P2P platforms seized on the significant market opportunity to reach creditworthy retail customers neglected by traditional financial service providers focused on serving larger enterprises. P2P lending platforms began gaining steam in the Chinese market about ten years ago, and there are now over 2,000 such platforms serving over eight million borrowers in China.

See:  Central banks should consider using digital currencies: China think tank

Unfortunately, there have been numerous instances of consumer abuses in the P2P industry. Many lenders/investors were led to believe that their funds were channeled to a specific borrower or that their loan was guaranteed by the P2P platform – beliefs that often turned out to be false. There were also cases of outright fraud. In one high-profile case, the company Ezubao was shut down in 2015 after authorities discovered it had been operating a Ponzi scheme in which fraudulent investment products were sold to nearly one million investors.

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Download the 98 page PDF report --> here

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:


Canadian Crowdfunding Industry Highlights Urgent Need for Changes


Locavesting | Staff Writer | March 16, 2018

Some Americans may envy Canada’s charming president and progressive politics, but when it comes to investment crowdfunding, the two countries are in the same boat.

In an appeal to government regulators this week, Canadian crowdfunding and financial tech advocates called out an “urgent need for regulatory changes and government support” for Canada’s entrepreneurial and capital raising ecosystem. That includes streamlining the country’s crowdfunding regulations and educating the public about the laws.

“Entrepreneurs are reluctant to start up in Canada due to the high costs (relative to a small financing), and significant ongoing regulatory burdens. Investors are inhibited by caps on investment and limited education about  the benefits and downside risks of crowdfunding and other exempt financings. This pushes many talented entrepreneurs and investors to overseas jurisdictions that better understand (and support) innovation and the economic potential of start-ups and small businesses,” writes the National Crowdfunding & FinTech Association (NCFA), a nonprofit Canadian trade group.

In Canada, online capital-raising rules vary by province, and efforts to “harmonize” the laws have fallen short.

The U.S. is in a slightly better position. The U.S. crowdfunding industry falls under a single federal framework, the 2012 JOBS Act.  However, 34 states have passed intrastate laws that can vary greatly.

But U.S. complaints are similar in other regards, including the need to improve burdensome regulations and educate the public about the new laws.

Of particular note, the NCFA decried the lack of support and incentives for education.

“Introducing new requirements/exemptions without a robust ongoing educational program is like asking new drivers to follow a road that contains no ‘signs’, without maps,” writes the NCFA.

In a 2017 survey by the NCFA, over 70% of respondents said more education was required to attract more investors to crowdfunding. A lack of awareness and education around crowdfunding laws is frequently cited as the number one challenge in the U.S. as well.

Data collection and analysis is also lacking, according to the NCFA.

Encouraging Investors

One area where Canada stands out may be in offering tax incentives for investors, although not specifically in conjunction with crowdfunding. The report doesn’t mention it, but some Canadian provinces, such as New Brunswick, have long offered tax incentives for local investors that have been held up as a model for the U.S.

Still, those efforts pale compared to the UK, where investment crowdfunding is more mature and investors may easily invest in local companies and startups via tax-advantaged retirement accounts. In the U.S., that requires setting up a separate (and cumbersome) self-directed IRA.

The NCFA warns that, without action, Canada risks falling further behind in global competitiveness and financial innovation. They cite an Ernst & Young “Fintech Adoption Index” that put Canada near the bottom of global fintech adoption rates, at just 18 percent. The U.S. clocked in at 33%, the average adoption rate, trailing countries such as Australia (37%), the UK (42%), India (52%) and China (69%).

The NCFA concludes with recommendations, including streamlining the regulations and potentially adopting British Columbia’s more preferable framework. It also advocated for regulatory “sandboxes” that allow for controlled financial experimentation—an idea that has been implemented in the U.K. and proposed in the U.S.

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NCFA Canada’s submission to Finance Canada (March 2018): Urgent Need for Regulatory Change and Government Support


NCFA Canada | March 15, 2018

On Tuesday, March 13, 2018, the National Crowdfunding & Fintech Association participated on a call with Finance Canada in Ottawa to discuss it's latest submission calling for an urgent need for regulatory changes and government support to ensure the Canadian fintech sector is not being held back and remains competitive with international comparators such as in the UK and US.  Below are the highlights of the submission that can be viewed/downloaded in full at the bottom of this post.

We'd like to thank Robin Ford, NCFA Advisor, Regulations and Governance for leading a group effort by the following participating NCFA members (in alphabetical order):

Alan Wunsche, Blockchain Canada
Alixe Cormick, Venture Law Corp
Amar Nijjar, R2 Capital / Investments
Beverly Brooks, Brooks Communications
Brad Kerr, FundingNomad
Cato Pastoll, LendingLoop
Craig Asano, Founder/Director, NCFA
Daryl Hatton, FundRazr / Director, NCFA
Douglas Cumming, Finance Professor, York University
Hitesh Rathod, NexusCrowd
Jason Saltzman, Gowling Canada LLP
Marcel Schroder, Managing Director, Vaultcircle (Lendified)
Marcus New, InvestX
Marty Gunderson, Director, NCFA
Peter-Paul Van Hoeken, FrontFundr
Richard Remillard, RCG Group / Director, NCFA
Robin Ford, former Head of Dept UK FSA, former Executive Commissioner BCSC, Consultant
Rubsun Ho/Sandy Hershaw, Crowdmatrix


1. OVERVIEW: Crowdfunding & Fintech are being held back in Canada

Canada’s crowdfunding and fintech “ecosystem” should be competitive, be in line with global trends, and enable early stage entrepreneurs to access smaller amounts of capital (ie, < $5 million) at a reasonable cost. Unfortunately it is not. There is a‘funding gap’ in the market as many smaller companies find it very challenging to raise debt or equity financing in Canada. This means fewer innovative start-ups, fewer opportunities for investors, and constraints on economic growth (and jobs).

The National Crowdfunding & Fintech Association of Canada (NCFA) has conducted numerous stakeholder consultations which overwhelmingly tell us that the regulatory requirements are overly prescriptive, complex, and burdensome (costly). The capital markets regulators in Canada have attempted to address the market problems within their jurisdictions, but so far without much success.

Canada is falling behind international comparators such as the United Kingdom and the United States. Entrepreneurs are reluctant to start up in Canada due to the high costs (relative to a small financing), and significant ongoing regulatory burdens. Investors are inhibited by eg caps on investment and limited education about  the  benefits  and  downside  risks  of  crowdfunding  and  other  exempt financings. This pushes many talented entrepreneurs and investors to overseas jurisdictions that better understand (and support) innovation and the economic potential of start-ups and small businesses.

The NCFA is very concerned about this and has strongly encouraged the BCSC and OSC to work smarter (and harder) to streamline regulation across the country, and to reduce undue burdens (that are not justified by the risks).

The NCFA now asks the federal government to work with the provinces and regulators to provide the required strategic direction and leadership needed to enhance Canada’s competitiveness.



The benefits of crowdfunding are broadly accepted and frequently described, eg - crowdfunding-2/#3fd5ab4c2c5e.

The same is true of fintech, eg - capturing-the-benefits-avoiding-the-risks/.

If the NCFA recommendations in this submission were to be implemented, the experience of other jurisdictions makes clear that more capital would be raised, especially for under-serviced sectors (eg, women and minority groups, including First Nations and rural areas). Investors would also have increased confidence and more freedom to invest as they choose.

We have a lot of tech and innovation talent in Canada. As the Competition Bureau has pointed out (Dec 2017 -, a more flexible approach to regulation and adequate government support would provide significant economic benefits by freeing entrepreneurship. It would also help to keep our entrepreneurs in Canada (along with the related jobs), boost GDP (especially by improving productivity), and encourage the commercialization of new products and services generally.



As the leading and only dedicated crowdfunding and fintech association in Canada, the NCFA has consulted numerous registrants, industry experts, and practitioners in the sector about the most pressing challenges.  They say:

  1. Investment-based crowdfunding requirements are far from internationally competitive with respect to raising non-bank funding.
  2. Regulatory requirements are overly prescriptive with a one size fits all approach (versus risk-based) that is not working.
  3. Regulatory regimes in Canada are not harmonized and are overly complex which adds significantly to the costs of start-up and ongoing compliance.
  4. Lack of co-ordinated governmental incentives and support for innovation and for education and awareness puts Canada at a disadvantage that our competitors are happy to exploit.


A. Overly prescriptive requirements

Many entrepreneurs been discouraged by high legal fees, onerous reporting requirements, and other burdens. While entry into the market may be possible, entrepreneurs are also inhibited by ongoing costs of compliance and high hurdles for future financings that will limit their ability to scale up.

For example, only a small number of issuers have used online platforms to raise capital under the Accredited Investor or Offering Memorandum Exemptions in Ontario. While the Offering Memorandum Exemption is gaining some traction and is used by several NCFA member portals, it is primarily aimed at companies wishing to raise at least $250,000 (due to the costs, for example, of preparing the necessary legal and financial documentation).  Most early stage companies seeking to  raise  smaller  amounts  of  capital  cannot  realistically  use  the  OM  (or  the Integrated Crowdfunding Exemption MI 45-108 due to similarly high costs).

These exemptions are also inadequate for most marketplace lending platforms. For example, they do not allow the multi-party participation of public, private and government blended funding models which have developed in the UK and elsewhere, or membership marketplace lending models. (See Appendix 10:  P2P Lending.)

BC and some other jurisdictions have a ‘lighter’ set of crowdfunding requirements (eg, the ‘Start-up Crowdfunding Registration and Prospectus Exemptions MN 45-316 that allow small firms to raise up to $250,000 per offering (twice a year), with participation from other provinces). If there is not be a move towards a risk based approach, then the NCFA supports BC’s regime and proposes that other jurisdictions at least allow BC offers to be distributed across Canada under a mutual   recognition   system.   (NCFA   was   pleased   to   see   BCSC’s   recent announcement   of   changes   to   the   Startup   Exemptions   (BCI   45-535)   - up_crowdfunding_exemption_will_increase_access_to_capital_for_B_C    issuers)

For more recommendations to streamline regulation see Appendix 11.

The NCFA encourages regulators not only to adopt a more risk-based approach, but also to improve the measurement of the cost of a proposed regulatory solution against its benefits. Detailed or prescriptive controls should only be imposed when clearly justified. Market problems should not be “resolved” by additional requirements unless demonstrated benefits exceed costs. (See Appendices 5 and 6

Prohibitions on Advertising and Solicitation’ and ‘Frequency of Reporting Requirements’ for a high-level analysis of two requirements where we conclude that the costs far outweighs any benefit, and Appendix 7 ‘Regulatory approach’.)


B. Regulation is not harmonized and is overly complex

There  are  currently  three  versions  of  crowdfunding  specific  requirements  in Canada that form a patchwork that varies with respect to offering documentation, ongoing   disclosure   requirements,   capital   raising   and   investor   limits,   and advertising. These differences make it more costly for early stage companies, most of whom want to raise funds and do business in more than one jurisdiction (with additional costs for issuers of approximately $5,000 - $20,000 in legal fees alone).

The differences among the regulatory systems are outlined in Appendix 1. The table illustrates how complex and varied the requirements are, causing confusion and frustration for all market participants. Appendix 2 shows that differences exist even among jurisdictions participating in the same instrument, in this case MI 45-108.


C. Lack of incentives and support for education and innovation

Introducing new requirements/exemptions without a robust ongoing educational program is like asking new drivers to follow a road that contains no ‘signs’, without maps.  To increase the use of the new financing tools, in addition to the regulatory changes the NCFA proposes in this submission, many more businesses and individuals need to be educated about the opportunities and threats for both entrepreneurs and investors.

We have selected some insights from the NCFA’s annual 2017 Alternative Finance Crowdfunding survey of 170 responders (Jun-Jul 2017) including investment platforms, companies seeking capital, and a wide range of investors (including VC/PE and institutional investors):   (See: Appendix 3  NCFA Selected Survey Results Charts)

  • When asked ‘What do you think is needed to attract more investors to the Canadian  alternative  finance  crowdfunding  markets?”    The  number  one (70% of the responders) answer was “More education”.
  • When  issuers  were  asked  “Has  your  company  ever  raised  capital  via alternative finance crowdfunding markets before?” the overwhelming majority (approximately 90%) responded ‘No’.
  • When asked why not, issuers’ number one reason (over 55%) was that they were ‘Unaware of how it works’.

While regulators have provided dedicated web pages to help potential investors and issuers better understand the capital markets, the information is limited. According  to  a  recently  published  Ernst  &  Young  “Fintech  Adoption  Index” survey, Canada has one of the lowest fintech adoption rates in the world and a central reason for this is lack of awareness. Over 70% of the respondents thought that more education was required to attract more investors to crowdfunding and that the regulators should publish more market analyses.

Data collection and analysis is poor in Canada. In contrast, the Securities and Exchange Commission (SEC) recently published an extensive whitepaper on Title III Regulation crowdfunding activity titled ‘U.S. Securities-based Crowdfunding under Title III of the JOBS Act’ that reviews offering activity, characteristics, geographic distribution and regulated platforms performance, characteristics and compensation rates.

It is crucial that data collection and analysis be improved in Canada (in collaboration with the private sector) so that we can better understand the markets and pinpoint problem areas (to enable evidence-based decisions).

Finally, we were pleased to see the announcement of the new federal program Innovative Solutions Canada as well as the support in Budget 2018, building on Budget 2017. These are steps in the right direction (and we are aware of some older federal programs). But Canada still needs a comprehensive innovation strategy and an integrated program of incentives and support. Governments, regulators, and the private sector need to work together more strategically. Other jurisdictions like the UK, Singapore, and Hong Kong are well ahead of us.



A. Work harder to harmonize and reduce unjustified regulatory burden

Prescriptive and complex regulation is simply inappropriate in a highly innovative and fast paced  digital  space.  Moreover,  businesses  cannot  be  as  nimble  and responsive to market demand.

We acknowledge that a change to a more risk based and principles based approach is not easy. Indeed it would require a profound change in regulatory culture and a significant and long term commitment from Ministers and regulatory boards and senior management. But short of that, there is much that can be done. The NCFA has made specific recommendations for regulatory change. (See Appendix 11.) (Regtech must also be part of a change of approach, but we do not discuss that here.)

B. Governments to support regulatory change

The  NCFA  strongly  supports  CSA  initiatives  such  as  “sandboxes” and  cross- border agreements (such as the recently announced agreement between some Canadian  regulators  and  the  French  AMF  FinTech,  Innovation  and Competitiveness Division). But it is not enough. (In the UK, the FCA is now pushing for sandbox improvements globally.)

There is a crucial role here for governments, especially the federal government, to champion innovation, to agree a fintech or innovation strategy with the provinces, to use already proven tax and other incentives, and to work with the private sector to ensure adequate data collection and analysis. The profound change in regulatory approach in the UK starting in 1997 could not have happened without the strategic planning and leadership of Number 10.

More government resources and support for innovation and education

While educational conferences are in high demand and markets are slowly gaining traction in Canada, the sector needs more government support to encourage and enable more portals  and  participants  to  start-up,  ‘scale  up’,  and  operate  more efficiently.    There  is  a  large  knowledge  gap  due  to  the  real  (or  perceived) complexities and burdens involved in putting together an online financing round. Businesses and investors need to be better educated about the options and the available  support  facilities  and  incentives.  Education  is  an  investment  by governments,  working  with  the  private  sector,  that  will  generate  more  capital investment and jobs, as well as making potential investors more risk aware.  (See Appendix   4:       Private-public   growth   model   for   the   alternative   finance crowdfunding industry.)



Governments play an essential role in facilitating and encouraging innovation and entrepreneurship. While one might now add to it, a wide ranging 2010 paper by PWC provides a good overview of how this can be done -   The   report   concludes:   “Countries  that   understand   their   particular economic profile, and design the right strategy to suit that profile, stand to raise the odds of success in fostering innovation.”


The NCFA urges the federal and provincial governments, as well as the provincial and territorial securities regulators, to work together:

  • to reduce regulatory burden, to champion innovation,
  • to make good use of proven tax and other incentives, and
  • to work with the private sector to ensure adequate data collection and analysis, as well as education and awareness.

If not, we will fall further behind.

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  For more information, please visit:


Innovate Finance Data: 2017 VC Investment Landscape


Innovate Finance | Feb 13, 2018

Innovate Finance’s 2017 VC FinTech investment landscape provides investors, startups and the wider FinTech ecosystem the data to understand trends and capital flows as the FinTech market evolves. Overall figures suggest that the UK has had its best year on record and was a global leader in terms of capital invested and deal volume, second only to the US.

Key Findings

  • The UK experienced its best year on record with $1.8bn of VC investment, up 153% on 2016
  • The UK ranked second globally in both total Capital Invested and Deal Volume, behind the United States
  • TransferWise, OakNorth, Funding Circle, Interactive Investor and Monzo led the top 5 top UK deals in the range of $90M to $280M of investment
  • There were 10 Innovate Finance members in the top 20 UK deals.
  • Global FinTech attracted $14.2BN of VC investment 2017 saw 1,842 deals a 18% decrease YoY.


Links you may be interested in:

More venture capital invested in Montreal than any other Canadian city in Q2

Animation: Four Years of Initial Coin Offerings

Download the full report --> here

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a national non-profit actively engaged with social and investment crowdfunding, alternative finance, fintech, peer-to-peer (P2P), initial coin offerings (ICO), and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, networking opportunities and services to thousands of community members and works closely with industry, government, academia and eco-system partners and affiliates to create a vibrant and innovative fintech and online financing industry in Canada.  For more information, please visit: