Category Archives: Research

Advancing the dialogue on the future of financial services

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Competition Bureau release | Dec 14, 2017

December 14, 2017—OTTAWA, ON—Competition Bureau

The Competition Bureau has published the final report from its market study concerning technology-led innovation in the Canadian financial services sector.

The report outlines barriers to the growth and adoption of financial technology (FinTech) in Canada and provides a number of recommendations to help regulators and policymakers continue to promote FinTech innovation. The Bureau’s proposals are aimed at fostering competition and innovation in how Canadians:

  • pay for goods and services;
  • obtain loans for themselves and their businesses; and
  • receive financial advice.

In its report, the Bureau recommends modernizing laws and regulations to encourage the entry and adoption of new technologies, while maintaining consumer confidence and safety in this rapidly evolving sector.

The report follows 18 months of active engagement with national and international leaders in this sector, federal and provincial government partners, and Canadians. During this time, a number of positive developments that align with the Bureau’s recommendations have occurred. For example:

  • The Canadian Securities Administrators launched a regulatory sandbox that allows businesses to test their FinTech innovations in an environment with fewer regulations, and enables administrators to develop a common regulatory approach.
  • The Department of Finance is looking at ways to modernize legislation and regulation, and is examining new concepts such as open banking. Open banking has the potential to offer Canadians more control over their banking information, the ability to find the financial services that best meet their needs, and greater ease of switching between service providers.
  • Numerous initiatives to modernize regulations have been launched, including the Ontario Securities Commission’s (OSC) LaunchPad, which aims to help FinTech firms navigate securities law requirements and bring new products to market faster. The OSC also partnered with the Australian Securities and Investment Commission to better assist FinTech firms to expand internationally.

The Bureau is proud to have contributed to the dialogue with regulators, industry stakeholders and Canadians. This kind of collaboration is key to ensuring that the future of FinTech in Canada is competitive and innovative.

See: 

Quotes

"FinTech has the potential to transform how Canadians access financial services. The findings and recommendations in our report will help regulators and policymakers create an environment that promotes FinTech innovation and growth in Canada."

John Pecman,
Commissioner of Competition

Download the full report --> here

 

The National Crowdfunding 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: www.ncfacanada.org

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IBA Reports: Rule of Law Versus Rule of Code: A Blockchain-Driven Legal World

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IBA Disruptive Innovation | Nov 2017

Rule of Law vs Rule of Code:  A Blockchain Driven Legal World

This comprehensive legal paper examines the current and future impact of blockchain on the legal profession and legal services including the challenges and opportunities. The paper describes the technological innovation, business impact and legal treatment to date in order to anticipate how this will affect the legal services sector and policy perspectives on a global scale.

 


Blockchain Technology:  Is it building a brighter future?

The invention of a revolutionary encoding or crytographic technology known as ‘blockchain’ is already central to a significant proportion of business-to-business and business-to-consumer commerce, legal products and processes.

'Ultimately, those firms that are willing to adapt and embrace this technology will be able to provide more effective and efficient services, which may lead to a competitive advantage over those firms who do not evolve.'

 


These times are changing:  Disruptive Innovation and the legal profession

This report seeks to investigate Professor Christensen’s ‘disruptive innovation’ theory as applicable to the legal profession. It provides a brief analysis of various changes occurring within the legal market, their potential consequences for both buyers and sellers of legal services, and the drivers and barriers to innovation.

 

Continue to download the full reports --> Here

The National Crowdfunding 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: www.ncfacanada.org

 

 

 

The National Crowdfunding 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: www.ncfacanada.org

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Nov 20, 2017: NCFA Canada Welcomes Competition Bureau’s recommendations to encourage competition and innovation in Canada’s financial services sector

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NCFA Canada | Robin Ford | Nov 20, 2017

Competition Bureau request for public comments on draft study:  Technology-led innovation and emerging services in the Canadian financial services sector

The Competition Bureau recently announced a draft report and issued a request for public consultation regarding technology-led innovation and emerging services in the Canadian financial services sector.  The consultation took place between November 6 and November 20, 2017 (11:59 pm Pacific time). and interested parties including NCFA Canada were invited to provide their feedback on the draft report no later than November 20, 2017.

Visit this link to learn more about the Competition Bureau and the scope and the premise of the study/report:  http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04315.html

NCFA Canada's submitted response:

  1. NCFA welcomes this report and its recommendations to encourage competition and innovation in Canada’s financial services sector.
  2. We agree that " competition is good for both business and consumers—and regulation should be minimally intrusive on market forces". We also agree that SMEs "are key drivers of economic growth—and their success is crucial to Canada's long‑term prosperity".
  3. We agree with the barriers to entry listed in the draft report (paragraphs in the report are not numbered) but would add to the list: inadequate incentives and assistance by governments, public funders, and regulators compared to other jurisdictions (eg, tax incentives, start-up loans or guarantees, grants, collaboration on data collection and analysis, educational programs for investors and start-ups, help with regulatory compliance, etc).As the draft report mentions, the UK has been very assertive in supporting start-ups and fintech. HM Treasury recently announced that small businesses struggling to access finance from the banks have found funds via government requirements that the biggest banks pass on the details of small businesses they have rejected for finance to alternative finance platforms - Funding Xchange, Business Finance Compared, Alternative Business Funding, and Funding Option. <https://www.gov.uk/government/publications/designation-of-banks-and-finance-platforms-for-finance-platforms-regulations>4. With respect to barriers caused by regulation, we add only that regulatory burden also tends to favour larger incumbent firms.5. Regulatory arbitrage is not necessarily a bad thing, as the report appears to suggest.6. We support all the recommendations in the report, in particular the recommendation for a FinTech policy lead in this complex and fast moving area.7. We would like to see an additional recommendation for more transparency in regulatory analysis. It has been very difficult in the past to respond to regulators' proposals because the published analyses have not been clear or complete. The problem proposed to be solved by regulation is rarely defined, the reasons for concluding that a regulatory intervention is needed are rarely set out, alternative solutions are not described with the reason(s) why one solution has been chosen rather than another, and (published) cost benefit analysis or impact assessment is rare. This means that stakeholders must infer much of the analysis and often do not have the data they need to respond. We would like to see a more transparent regulatory approach to reduce the risk of unnecessary or incorrect regulation and to enhance collaboration.

    We would also like to see the encouragement of fintech advisory groups to governments and regulators with strong representation from the businesses themselves.

    8. The statements in the following paragraph are contestable - some are highly contestable.

    "The large financial institutions in this country did not fail, largely due to Canada’s strong regulatory regime and the sound business practices of those institutions. Because our financial institutions did not fail, demand for P2P lending and equity crowdfunding is significantly lower in Canada than in jurisdictions where the financial crisis had a greater impact or where regulatory regimes were insufficient to prevent widespread bank failure. In those jurisdictions, regulators responded by strengthening restraints on financial institutions, effectively causing a contraction in available SME credit. As a result, demand for P2P lending and equity crowdfunding increased significantly faster than in Canada."

    We suggest that references to support these conclusions be added.

    9. We are not sure why, in the description of the UK's regulatory framework for P2P, the word "forces" rather than simply "requires" is used.

    10. We do not agree that "in the UK, [a] renewed focus on competition has led to the establishment of the "twin peaks" of regulatory structure: the Prudential Regulation Authority (PRA) and the FCA." Rather, it was the other way round. As HM Treasury's consultation document of July 2010 states -

    "1.4 The UK’s ‘tripartite’ regulatory system made three authorities – the Bank of England (the Bank), the Financial Services Authority (FSA) and the Treasury – collectively responsible for financial stability, and, as a result, this system failed in a number of important ways."

    "1.6 Perhaps the most obvious failing of the UK system, however, is the fact that no single institution has the responsibility, authority or powers to monitor the system as a whole, identify potentially destabilising trends, and respond to them with concerted action." [https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/81389/consult_financial_regulation_condoc.pdf]

    The UK Government's decision to change the regulatory structure led to a renewed focus on (among other things) the competition objective of the regulator and (after strenuous debates in Parliament) a stronger competition objective was added to the legislation.

    11. We suggest that "risk" be defined. For most risk professionals, it simply means "uncertainty". With uncertainly comes both threat and opportunity. And of course risk does not exist in a vacuum, it is always 'risk to what?' (to competition? to regulatory objectives?).

    Thank you for the opportunity to comment.


 

The National Crowdfunding 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:  www.ncfacanada.org

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Competition Bureau invites feedback on draft FinTech report

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Press Release | Competition Bureau | Nov 6, 2017

November 6, 2017 – OTTAWA, ON – Competition Bureau

As part of its commitment to engage with Canadians on emerging issues, the Competition Bureau has published a draft report on its market study concerning technology‑led innovation in the Canadian financial services (FinTech) sector.

The financial services sector is a pillar of the Canadian economy. From consumers buying groceries to businesses making investments that create the jobs of tomorrow, practically everything we do relies on this sector.

Recently, there has been a wave of new, innovative, and technology-based means for Canadians to access financial services. The introduction of innovative products is an opportunity to inject greater competition in the sector. When there is more competition, we generally see lower prices, more choice and convenience for consumers, as well as higher levels of innovation.

“The future is now. Let’s get it right by providing policymakers with the information they need to nurture a competitive environment that allows Canada’s FinTech companies to innovate and grow globally.”

-John Pecman, Commissioner of Competition

However, innovative products are often challenged by the rules associated with the old ways of doing business. The draft report contains a number of recommendations for regulators and policymakers to consider. Each recommendation is aimed at modernizing the regulation of financial services to support innovation and greater competition through FinTech.

See:  Competition Bureau suggests Canadian FinTech sector’s slow growth due to regulation, consumer complacency

Through the publication of a draft report, the Bureau continues to engage with stakeholders, including businesses, consumers, and domestic and foreign regulators and policymakers. Interested parties are invited to provide their feedback on the draft report no later than November 20, 2017 by completing the online form, or by sending comments to the coordinates below:

Competition Promotion Branch
Competition Bureau
50 Victoria Street
Gatineau, Quebec
K1A 0C9
Fax: 819-934-9293

The Bureau will soon release a final report which takes into consideration the views collected during the consultation period.


The National Crowdfunding 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:  www.ncfacanada.org

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KPMG Report Commissioned by the City of London: Value of Fintech

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City of London, UK | October 2017

This research seeks to ‘unpack’ the term Fintech and its value, not only to financial services but also to other areas of the economy.

The report considers the position of SMEs, and whether they stand to benefit more from Fintech than they have through financial services conventionally delivered. It also aims to demonstrate how Fintech will continue to open access to financial services to individual consumers, particularly those hardest to reach.

See:  Revealed: the UK’s biggest crowdfunder

The key recommendation is for a sector deal for Fintech that reinforces and cements the UK as a leading global hub for Fintech as the number one destination for Fintech businesses. This will develop a single policy vision for Fintech, coordinate open standards, enhance regional engagement and support talent development and greater access to capital for Fintech businesses.

This report was commissioned by the City of London Corporation and produced by KPMG.

Continue to the article and Download the report --> here

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both investment and social crowdfunding, blockchain ICO, alternative finance, fintech, P2P and online investing stakeholders across the country.  NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a vibrant and innovative online financing industry in Canada.  Learn more About Us or visit www.ncfacanada.org.

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NCFA Submission to Ontario Ministry of Finance: Urgent Need for Regulatory Change

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NCFA Canada About Us | Internal Working Committee | Nov 4, 2017

Ontario's Crowdfunding Requirements are Market Stifling

Nov 4, 2017 Toronto -- Canada’s crowdfunding regime must be competitive, in line with global trends, and ‘smarter’ to enable wider access to small amounts of capital (i.e. < $5 million) by early stage companies. There is a ‘funding gap’ in the market as many smaller companies find it extremely challenging to raise funding. This means fewer innovative start-ups, fewer opportunities for investors and constraints on economic growth (and jobs).

Since the regulatory regime came into force on Jan 25, 2016, the National Crowdfunding Association of Canada (NCFA) has conducted numerous stakeholder consultations which overwhelmingly tell us that the current requirements are overly prescriptive, complex and burdensome (costly).  They restrict crowdfunding to a limited number of investors and discourage smaller issuers and licensed dealers from participating.

As a result, Ontario and Canada are falling behind international comparators such as the United Kingdom (U.K.) and the United States (U.S.). Companies and investors are reluctant to participate due to the high costs (relative to the small financing size), unwarranted transactional and ongoing regulatory burdens, and educational gaps.  This pushes many talented entrepreneurs, investors and key stakeholders to overseas jurisdictions that understand (and support) innovation and the economic potential of start-ups and small businesses.

In its 2017 Ontario Exempt Market Report, the Ontario Securities Commission (OSC) confirmed that M1 45-108 had not been used at all in Ontario. A small number of issuers have used online platforms to raise capital under the Accredited Investor or Offering Memorandum exemptions. In the NCFA’s view, this warrants further analysis and changes to the existing regime.

The U.K. has a more innovative risk-based regulatory approach that is acknowledged to be world class and is highly adaptive to emerging technologies. NCFA strongly encourages Canadian regulators to study its approach.  The U.K. also has assumed a leadership role with incentives and funding to support early market traction and education.  In the U.K., crowdfunding activity continues to flourish, representing 25% of all equity deals announced in 2016.

The U.S. has also made significant progress with 134,000 small businesses benefiting from crowdfunding in 2016 (some of which are Canadian) versus only 7,450 in Canada.  In the U.S. there is an ongoing effort to fix bugs and improve regulation with a focus on protecting investors and providing improved opportunities for smaller entrepreneurs and investors to generate wealth (e.g. “H.R. 4855 Bill “Fix Crowdfunding Act” passed by the House on July 6th, 2016).

While NCFA has participated in numerous key stakeholder fintech consultations with a wide range of regulatory and competition agencies such as the MoF, BCSC, OSC and the Competition Bureau there is:

"Urgent need for regulatory change that must be addressed from the top down to ensure these issues have a political champion with the mandate to reduce critical barriers that limit economic growth and Canada's ability for fintech innovations and peer to peer distributed technologies to be globally competitive.", said Craig Asano, CEO, NCFA Canada.

Thanks to the NCFA internal working committee on regulations and governance, lead by NCFA Advisor, Robin Ford and the numerous individuals and companies that participated to prepare the submission, and/or participate in various meetings with government agencies, such as the MoF, BCSC, OSC and Competition Bureau across the country to foster Canadian fintech competitiveness and help reduce barriers for both new entrants and operators looking to scale and remain competitive with international trends.

"The current regulatory approach to crowdfunding is not working. We are sending our innovators and entrepreneurs to the US for capital! Regulators, governments, and other stakeholders must collaborate on a more risk-based and flexible approach to this rapidly evolving sector while also recognizing that start-ups and scale-ups need a helping hand to unleash their economic potential" -- Robin Ford, NCFA Advisor and Regulations and Governance Committee Lead

 

Meeting with the Ontario Ministry of Finance

On October 20, NCFA met with with Ontario's MoF to discuss ways to enhance access to capital (esp. for small businesses), stimulate investment and improve competitiveness in line with international fintech trends & distributed technologies impacting Crowdfinance, P2P, Blockchain ICOs, Altfi and global digital marketplaces.

Call to Action:

  1. Work harder to harmonize and reduce unjustified regulatory burden:   We strongly encourage the Ontario government, and the OSC, to work smarter (and harder) to streamline regulation across the country, reduce undue burdens that undermine cost effective capital formation for young companies (and that bear no relation to the risks presented by crowdfunding), and provide the required resources and support to encourage the crowdfunding sector and to improve Ontario’s competitiveness.
  2. Canada (Ontario) Needs a political champion to promote regulatory change:   Industry needs to garnish support from the Ontario MoF to champion the proposed regulatory changes deemed the highest priorities for change based on data/evidence, consensus from wide stakeholder consultations and comparative analysis of Canadian markets with international jurisdictions such as the UK and the US.
  3. Address urgent pressing challenges and implement NCFA's proposed specific regulatory changes:  such as lack of harmonization and mutual recognition, overly prescriptive rules (vs. risk/principles based regulatory approach), full service Sandbox with cohorts etc (vs current concierge service) and educational/resource gaps. 


Download the Ontario MoF Submission --> PDF here

 

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both investment and social crowdfunding, blockchain ICO, alternative finance, fintech, P2P and online investing stakeholders across the country.  NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a vibrant and innovative online financing industry in Canada.  Join Us!  Learn more About Us or visit www.ncfacanada.org.

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Most ICOs Fail: Tale of Two Worlds

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Hackernoon | Eric Risley | Sep 26, 2017

The number of Initial coin offerings has surged over the past six months. However, all is not as rosy as it appears. A nuanced assessment of token distribution activity tells a tale of two very different issuer experiences. Architect Partners evaluated over 100 project white papers augmented by data published by Smith + Crown and tokendata.io to move beyond the breathless headlines.

Successes

Yes, there are many successful token distributions. Since the beginning of June 2017, 46 projects have completed an ICO in line with their stated objectives, raising over $1.6 billion. On average these projects have raised $36mm to fund their efforts although outliers skew the data as the median raise was $19mm. Clearly these projects have demonstrated excellent receptivity by token purchasers.

Failures

However, most ICOs fail, sometimes miserably, at achieving their objectives. The vast majority of issuers indicated their token distribution goals via a stated goal, a soft cap or a hard cap. We simply evaluated final results vs. stated objectives. If an issuer achieved greater than 75% of their hoped-for token distribution, we considered it a success, below that level, a failure.

The token distribution market has quickly become more difficult. In June 2017, only one project failed to reach their objective. However, subsequent months tell a far different tale. From July 1 through September 25th 2017, 51 ICOs launched with high hopes, yet failed to meet their own objectives. These represented an astounding 59% failure rate for all ICOs during that time period.

Join us Nov 16 for a Toronto event:  New Frontiers in Capital Innovation - Initial Coin Offerings

Some may contend that even failure is beneficial to a project as it raises funds to allow the initiation or continued development of the project and team’s vision. In some cases, that’s a quite reasonable argument, however, in many cases the value proposition of the actual token issued is seriously compromised, perhaps permanently. Also, the level of capital raised from a failed token distribution is rapidly declining, from a median of $4mm in July 2017 to $2mm in September 2017 and 21 (43% of the total) raised $1mm or less from their efforts.

Chart: Token Distribution Success Rate

The chart below details each project evaluated and the results:

Lessons and The Future

We are clearly seeing a first step in the maturation of the ICO market. While each token distribution success and failure requires its own analysis, it’s clear that the market is doing what markets do best: make efficient decisions. That’s not to say all the successful token distributions will become successful projects and vice versa, however, a stark two-tier market has quickly developed via “crowd behaviour”.

Continue to the full article --> here

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both investment and social crowdfunding, blockchain ICO, alternative finance, fintech, P2P and online investing stakeholders across the country.  NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a vibrant and innovative online financing industry in Canada.  Learn more About Us or visit www.ncfacanada.org.

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