Category Archives: Legal Issues and Regulation

Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?

Crowdfund Insider | | Oct 7, 2019

Canadian flag2 - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?Last week, the Alberta Securities Commission (ASC) adopted a “Blanket Order” for “Startup Crowdfunding Registration and Prospectus Exemptions.” In effect, the ASC was seeking to improve access to capital for smaller firms – a good thing- but the move also highlights the disparity between the provinces and a greater need for national harmonization of online capital formation rules. Financial services in Canada are all regulated at the provincial level thus there exists a degree of disparity regarding rules.

While a smaller country by population, Canada has consistently ranked high in entrepreneurship and innovation. According to a recent KPMG report, the Canadian Fintech ecosystem is thriving but, like any other country, more can be done.

Crowdfund Insider reached out to Denise Weeres, Director, New Economy at the ASC and Craig Asano, Executive Director and founder of the National Crowdfunding and Fintech Association of Canada (NCFA). The NCFA has long led the charge advocating on behalf of Canada’s emerging Fintech market and various securities crowdfunding platforms.

The New Economy Division of the ASC works closely with staff to coordinate efforts to facilitate capital-raising by new economy companies entering the capital market. The Division also strives to anticipate and act on issues and opportunities relating to emerging financial technologies (Fintech).

Our discussion with the two innovation proponents is shared below.


The ASC update to rules is in advance of national harmonization. Why update now?

Denise Weeres: It takes a while to get a national instrument in place.  We wanted to allow Alberta businesses and investors to be able to participate in this regime now.

What is the status of harmonization?

Denise Weeres: All of the CSA [Canadian Securities Administrators] jurisdictions are working cooperatively on the national instrument  – we are looking at harmonizing and exploring targeted amendments to improve upon the existing regime.

The maximum raise amount appears to be low in contrast to some other jurisdictions. Are there any expectations for this amount to be raised?

Denise Weeres: The maximum raise is consistent with the other participating CSA jurisdictions start-up crowdfunding regimes.

Start-up crowdfunding is intended for the very early-stage businesses.  It requires a very simple offering document – and significantly doesn’t require financial statements.

A funding portal that is not registered as a dealer can be used too.  The limits reflect the fact that investors likely won’t get all the information they would typically (both at the time of the offering and thereafter) and they may be using a funding portal that isn’t registered and wouldn’t get the protections associated with a registered dealer.

But start-up crowdfunding is not the only way to crowdfund in Canada.  It’s just one of a number of options available.

See:  Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

For example, businesses can crowdfund through a registered dealer funding portal under the offering memorandum [OM] exemption where there is no limit at all on the maximum raise and much higher amounts for the amount that individual investors can invest;

  • $10K for anyone,
  • $30K for an “eligible investor” e.g., someone who had had and expects to have $75K net income or has $400K net assets
  • up to $100K for an eligible investor who also gets advice from a dealer that the investment is suitable for them and
  • no limit for accredited investors.

Under the offering memorandum exemption, the offering document has more detailed disclosure – more similar to the offering document used for U.S. crowdfunding – and like other jurisdictions, it involves a funding portal that is registered as a dealer.

In #Canada, businesses can crowdfund through a registered dealer funding portal under the offering memorandum (OM) exemption where there is no limit on the max raise & much higher amounts for the investors

Craig, how is the Canadian ecosystem evolving, in your opinion?

Craig Asano: The Fintech ecosystem in Canada is growing, albeit not fast enough!  ‘slow and steady’ compared to high competition, fast iterations and market depth of UK/US markets but Canadian tech is starting to attract the interest of US funds and international Fintech brands are taking notice too of which many are planning to include Canada in their rollout plans (ie Revolut).

New Fintech startups are launching all the time in a growing number of private and public incubators, accelerators, innovation hubs and grassroot event ecosystems that include a wide range of AI/data, Regtech (KYC, compliance automation), peer to peer debt/equity platforms, digital asset, crypto, DLT, NEO/challenger bank, Insurtech, personal finance, wealth management and alternative investing models.

Although the ecosystem is evolving the average consumer is conservative with lower Fintech awareness and adoption rates (similar to the US) than comparators in Europe and Asia.  Incumbents are strong and many Fintechs have partnered with institutions to tap capital resources, customers, data and global expansion infrastructure.  Canadian markets are smaller than the US and while it’s easy to launch it’s challenging to achieve sustainable business with significant compliance costs to operate across the country while acquiring customers not yet fully accustom to switching financial products.  There have been many successful fintech startups that are scaling from Lending Loop to Wealthsimple to Borrowell and FrontFundr who are all providing consumer-centric, simple to access, low cost, and tech-enabled financial products and services for new economy.

Open Banking is a juggernaut of an opportunity for data-driven Fintechs and consumers looking for choice, lower fees and innovative products but conversations are at a standstill until after the upcoming election.  The Ministry of Finance in Ottawa and appointed open banking advisory committee are no doubt watching the implementation challenges of PSD2 in Europe along with the progress being achieved in countries like Australia who are advancing national innovation initiatives like Open Banking ahead of Canada (and the US for what it’s worth).  Will these delays put Canada behind the eight-ball, or will we be able to catch-up quickly (leapfrog) and marry our robust tech sector with a historically strong banking system and begin to replace outdated infrastructure?

Specific to crowdfunding regulation in Canada, there’s still a long way to go to remain globally competitive in terms of caps, operating costs and the appropriate amount of regulation for the risk while making it feasible for licensed dealers and funding portals to have a sustainable practice.  The lack of harmonization and overly complex set of rules initially caused quite a backlash to the reputation of industry.

At present, there are far too few crowdfunding platforms and we need more operators to increase market volumes and reignite transactional interest among service providers, funding specialists, securities lawyers, and both retail and accredited investors.  Peer to peer lending is now proven and helping hundreds of companies’ access growth-orientated loans but needs its own set of proportionate regulation to level up further.  I look forward to next year to full harmonization which the CSA staff mentions will be out next year (ideally with the changes NCFA has been advocated for on behalf of industry for years).

Open Banking is a juggernaut of an opportunity for data-driven #Fintechs and consumers looking for choice, lower fees and innovative products 

How has NCFA’s collaboration with provincial regulators helped to move things along?

Craig Asano: We’ve developed a mutually beneficial relationship with regulators from the start which has been informative for both parties.  NCFA bridges the gap between stakeholder wants and needs and helps regulators better understand emerging innovations that are essential for Canada to remain competitive and current with the times.  The association polls its wide network of industry practitioners and aggregates feedback to regulators through comment letters, committee participation and bespoke submissions and calls.

We work with other agencies and encourage regulators to recognize a competitive perspective in their difficult role of regulating fair and efficient capital markets while protecting investors.  NCFA also gathers a significant amount of global market intel and research on how other jurisdictions are performing and shares with market participants and regulators alike in effort to bridge gaps and help stakeholders understand varied perspectives.  Regulators are regularly invited to NCFAs annual conferences where they participate to provide updates on emerging regulatory initiatives, challenges and concerns while providing education and resources for industry, companies and investors.

NCFA is appreciative of the challenge facing regulators and positions itself as an educational resource and network for the various provincial commissions to rely on at anytime.  While we advocate for specific asks on behalf of industry, we do so in ‘Canadian style’ which is a collaborative effort.

NCFA bridges the gap between stakeholder wants and needs and helps regulators better understand emerging innovations that are essential for Canada to remain competitive and current with the times #Fintech

What are your expectations for 2020?

Craig Asano: I expect to see more growth and investor appetite while regulators continue to reduce the burden which is overly burdensome now.  This means small wins for the industry but doubtful for large scale national initiatives like Open Banking to reach implementation by 2020.

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NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Facebook faces EU grilling over Libra ‘cryptocurrency’ after losing PayPal backing

TNW Hard Fork | Yessi Bello Perez | Oct 7, 2019

Facebook Libra and EU committee - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?As Facebook deals with the loss of PayPal‘s backing for its ‘cryptocurrency‘ Libra, the tech giant must now get ready to answer EU regulators’ questions about the potential risks posed by the project.

The European Commission has requested that Facebook and the Libra Association – the body tasked with supervising the digital currency – answer questions relating to financial stability, money laundering, and data privacy risks.

According to the Financial Times, which saw the commission’s questionnaire last week, this is all part of EU financial commissioner Valdis Dombrovskis’ efforts to asses whether projects such as Libra should be regulated in the EU, if new regulation is required, or whether the ‘cryptocurrency‘ should be allowed to operate at all.

See: 

 

The news couldn’t come at a worse time for Facebook, which has faced increasing scrutiny and opposition from regulators in recent months.

Just last month, Libra‘s founders were subject to questioning by 26 central bank officials in what was the first encounter between the technology giant and regulators.

Prior to that, in August, Brussels’ antitrust body raised concerns about Libra potentially causing competition restrictions.

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NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Canadian securities regulators implement investor protection reforms, strengthening the client-registrant relationship across Canada

BCSC | Kristen Rose | Oct 3, 2019

bcsc2 - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?Toronto – The Canadian Securities Administrators (CSA) today published rule amendments to implement the Client Focused Reforms (the reforms) across Canada. These reforms are based on the fundamental concept that clients’ interests come first in their dealings with firms and individuals that are registered to give investment advice and trade in securities (registrants).

Registrants will be required to address material conflicts of interest in the best interest of their clients and put clients’ interests first when determining the suitability of investments. These reforms introduce new obligations on registrants or codify best practices, particularly with registrants’ obligations to “know your product,” “know your client,” consider specific suitability factors, and disclose important information to clients.

The reforms are expected to increase investor confidence in the industry by better aligning industry conduct with investors’ expectations.

“Taken together, these changes mean better protection for retail investors across Canada, and a high and uniform standard of conduct for all registrants. Both investors and the industry as a whole will benefit from these new requirements,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers.

These reforms follow a multi-year policy process which included two consultation papers and public roundtables, leading to the publication of proposals for comment in June 2018. In response to stakeholder feedback, the CSA revised specific aspects of the 2018 proposals to provide flexibility for registrants to comply with their obligations in a way that reflects their business models and their clients’ needs and objectives. The CSA will continue to provide guidance, and will provide an implementation committee to respond to questions and otherwise assist registrants with implementing these fundamental changes.

See:  BCSC takes on direct oversight of Canadian Securities Exchange

The Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) were active participants throughout this process, and will amend their respective member rules, policies and guidance to be consistent with the changes published today.

The reforms come into force across Canada on December 31, 2019, provided all ministerial approvals are obtained. There will be a phased transition period, with the reforms relating to conflicts of interest and the associated relationship disclosure provisions taking effect on December 31, 2020, and the remaining changes taking effect on December 31, 2021.

The reforms are amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and Companion Policy 31-103CP [include link] and can be found on CSA members’ websites.

The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

Source:  BCSC Release | more info on 31-103 amendments


NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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ASC adopts Start-up Crowdfunding Blanket Order

ASC | Denise Weeres | Oct 2, 2019

ASC Alberta Securities Commission - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?CALGARY – October 2, 2019 – To eliminate unnecessary barriers to financing, and better facilitate access to capital for start-ups and other small businesses, the Alberta Securities Commission (ASC) has adopted Blanket Order 45-521 Start-up Crowdfunding Registration and Prospectus Exemptions (the Blanket Order).

This Blanket Order provides an exemption from prospectus and registration requirements to facilitate start-up crowdfunding. Both issuers and registered funding portals can use the Blanket Order. It is also available to unregistered funding portals as soon as they comply with the terms of the registration exemption, which includes receiving confirmation that ASC staff have received all required documents.

“The ASC continues to participate with its colleagues in the Canadian Securities Administrators in implementing a national instrument to address start-up crowdfunding,” said Stan Magidson, Chair and Chief Executive Officer of the ASC. “The Blanket Order is intended as an interim measure before a national instrument is implemented. It will increase harmonization and facilitate Alberta businesses raising money in multi-jurisdictional start-up crowdfunding offerings in participating jurisdictions and allow Alberta investors to participate, while still providing appropriate investor protection.”

A copy of the Blanket Order can be found on our website at albertasecurities.com.

The ASC is the regulatory agency responsible for administering the province's securities laws. It is entrusted with fostering a fair and efficient capital market in Alberta and with protecting investors. As a member of the Canadian Securities Administrators, the ASC works to improve, coordinate and harmonize the regulation of Canada's capital markets.

Source:  ASC News Release

See:  Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

 


NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Toronto Centre Podcast: Industry and Regulatory Perspectives of the Distributed Ledger Technology ASX Implementation

The Toronto Centre | Podcast | Sep 28, 2019

torontocentre podast - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?

In this podcast, Ilana Singer, Chair of the Securities Advisory Board, Toronto Centre interviews Katie McDermott General Manager for Equity Post-Trade Services, Australian Securities Exchange.

In this podcast, Ilana Singer, Chair of the Securities Advisory Board, Toronto Centre interviews Oliver Harvey, Chief Supervisory Officer, Australian Securities and Investments Commission (ASIC).

 

 

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NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Incumbents, consumer complacency barriers to innovation in Canadian banking

Betakit | | Sep 27, 2019

canadian banking innovation barriers - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?Wednesday at the #ElevateTechFest Money Stage, BetaKit’s Meagan Simpson spoke with three FinTech disruptors about open banking and the barriers faced by innovators looking to shake up Canada’s financial system.

“I think we need to own the fact that we frankly didn’t get our shit together soon enough.”

The panel featured Daniel Eberhard, founder and CEO of Koho, a Toronto-based challenger bank, Alexandra Nuth, managing director of ATB’s new digital offering Brightside, and Saud Aziz, strategy and operations manager of Canada for Revolut, a UK-based challenger that is currently expanding to the Canadian market.

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Revolut is one of a number of UK-founded challenger banks, including Starling and Monzo, that have popped up in recent years to offer an alternative to traditional banking. The UK, in fact, is known as having a competitive environment for challenger banks to thrive. The UK has adopted open banking much more quickly than other nations; In 2016, the United Kingdom Competition and Markets Authority required the nine largest UK banks to allow licensed startups direct access to their data.

Eberhard said the regulatory environment across the pond in Canada has made it much more difficult to thrive as a challenger bank, as regulators have prioritized managing system risk over creating a competitive environment.

Open banking is meant to give consumers more control by allowing their banks to distribute their personal data to third parties through the use of open application programming interfaces (APIs). One of the goals of open banking is to foster a more competitive and innovative financial ecosystem and proponents of open banking claim it allows financial companies to improve their offerings and customer engagement, and create new channels for digital revenue.

One of the specific advantages to UK challenger banks over their Canadian counterparts is the ability to receive an electronic money institution licence (EMI), which allows PayTech and FinTech companies to offer specific and common financial operations, including money remittance services, process payment transactions, and direct debit or credit transfers.

No such licence exists in Canada, and this inability to operate means companies like Koho need to rely on partnerships with incumbent institutions to move their customers’ money. Aziz said regulators need to understand that Canada shouldn’t have a binary framework between existing as only either a bank or not a bank.

See: 

Outside of Canadian regulations that also make it extremely difficult for startups like Koho and Revolut to get banking licences, challenger FinTech’s like Koho have faced direct roadblocks from incumbent financial institutions. Eberhard referenced a tweet that he shared over the summer, regarding a Koho employee being blocked by CIBC from transferring funds to their Koho account, with the bank flagging that Koho could be associated with “scams.”

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NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Innovate Finance KPMG Report on Transforming Fintech in the UK Calls for Regulatory ‘ScaleBox’

KPMG UK | September 2019

Innovate Finance KPMG transforming fintech in the UK Sep 2019 - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?The UK is viewed as a leading location for Fintech thanks to its position as both a top financial services jurisdiction and one of the highest ranked global technology hubs. It cannot rest on these laurels, as there is competition from Asia, the US and increasingly from Europe. How does the U.K. strengthen this position; expand the ecosystem; and use Fintech to remain a leading financial centre in the future?

ScaleBox:  Proportionate Regulation for SME Capital Markets

The UK has led global innovation in Financial Services regulation. The role of the regulator in facilitating development is key: with over 110 firms entering the Financial Conduct Authority’s (“FCA”) Regulatory Sandbox since its inception and our leading position in the Global Financial Innovation Network (“GFIN”).  However, competition for innovation is coming from Asia and competing with a, usually, less restrictive regulatory environment has created two streams of global Fintech businesses with the likes of AliPay’s and WeChat Pay’s innovation and growth far outstripping anything in the West.

See:  NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

ASPAC’s Fintech sector CAGR is 43% compared to the global average of 22.17% (14).

Fintech ScaleBox - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?

Despite the success of the Sandbox, Fintech businesses still appear to struggle to scale and move from the unregulated space to full FCA regulation, with only 39% of businesses entering the Sandbox receiving further investment.

There is an opportunity to consider proportionate oversight/regulation in a scaling environment which bridges the gap between the Sandbox and full FCA regulation, akin to ‘EU SME Growth market’ concept which has brought proportionate regulation to SMEs for Capital Markets in the EU. The ‘ScaleBox’ could also be used to address asynchronous regulation from inbound Fintechs to drive innovation in existing UK Financial Services businesses.

Download 4pg PDF:  KPMG Transforming Fintech in the UK report

 


NCFA Jan 2018 resize - Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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