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Big banks' dominance hampering fintech sector

Established banks’ control over Canadian fintech may be inhibiting the sector’s development in this country, says Toronto corporate and commercial lawyer Marlin Horst.

A recent report by the Competition Bureau concluded regulators and institutions must work together to boost flagging innovation rates in Canada’s emerging technology-driven financial services after canvassing the opinions of players in the field.

But Horst, a partner with the Toronto office of Shibley Righton LLP, tells AdvocateDaily.com that the structure of the Canadian financial services industry is a big barrier

“In the rest of the world, fintech is a disruptor that changes the way people deal with financial institutions, but in Canada’s its’ been co-opted by the old guard,” he says.

Canada’s unusually concentrated industry, which sees just five banks account for more than 90 per cent of the domestic market, means that upstarts set their sights on joining the established players, rather than challenging them, Horst says. 

“Instead of going on and making it as stand-alone businesses, they end up being purchased by the big players,” he says. “For many, that’s the end goal; to be noticed and swallowed up. And a number of them have been successful in achieving that aim.”

The bureau’s report, which summarized discussions at a workshop it hosted, identified a number of key reasons for the failure of the fintech sector to reach its full potential so far in Canada, including:

  • A lack of trust in new alternatives to the big banks;
  • Consumer complacency;
  • Challenges for Canadian fintech companies in growing their business to a global scale;
  • Restrictions on access to data and banking infrastructure; and
  • A regulatory framework that is often complex, fragmented, prescriptive and does not sufficiently account for changing technologies

Participants at the workshop included startups, banks, domestic and international regulators, and academic experts. The bureau plans to include their input in a more extensive fintech study to be released later in 2017.

The summary says industry delegates agreed Canada has a potential edge in the fintech scene as a result of its robust banking system and talented technology sector.

But they also commented that regulators could do more to adapt to innovations on the horizon by adopting a lighter regulatory approach based on principles and function, with a focus on managing appropriate risks.

"The right regulatory approach is about striking a balance between innovation, resilience and consumer protection. It is about getting the principles right. We saw at the fintech workshop that Canadian regulators are paying attention: they are engaged and ready to collaborate," Commissioner of Competition John Pecman said in a statement unveiling the findings.

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