SDR Valuations Inc.
Corporate

Fintech development aided by regulatory sandboxes

Securities regulators face a tricky balance trying to protect consumers without hampering innovation, Toronto corporate and commercial lawyer Marlin Horst tells The Lawyers Daily.

Horst, a partner with the Toronto office of Shibley Righton LLP, was speaking about an update to the Canadian Securities Administrators’ (CSA) regulatory sandbox, which is designed to support fintech businesses disrupting the financial services market by providing them with a live environment for testing without being smothered by rules.

“Fintechs are often directing people-to-people transactions, so taking out the financial institution at their most basic level,” Horst tells the legal news outlet. “What these securities commissions have been doing is trying to figure out a way to not stand in the way of innovation, but still somehow protect the consumer because really that’s what the securities laws are there to do is to protect the consumer (i.e. the investor) from getting ripped off.”

The article outlines the CSA’s latest update, which unveils a five-step process covering the application submission and review process for admission to the sandbox.

Horst says fintechs should view the sandbox as a stepping stone to bigger things.

“The idea of the sandbox is not that the Fintech entity stays there forever. What it does is once they’ve developed something that really does have a future they can graduate into the next level,” he says. “Which might be traditional registrations, traditional licences, but it gives a chance for innovation to sort of figure out what it is it wants to do.”

In the article, Horst says modern technological advances have made securities regulation more complex and challenging.

“In the old days of your usual broker dealer selling securities to the public, it’s pretty easy to say, ‘Okay, everyone dealing with the public needs to be a registered licensee,’” he says.

But that doesn’t work so neatly in the fintech era when companies are little more than a platform connecting consumers with investment opportunities, Horst explains.  

“It’s a different sort of an entity and the regulatory regimes in place don’t really match that,” he adds.

Horst advises lawyers working in the fintech space to be open with regulators about their clients’ services.

“Because ultimately what you’re developing is a product, or a disruptive technology, that will be more than just the little guy in the sandbox. You’re going to graduate to somebody bigger. The last thing you want to do is not be open with the securities commission,” he says.

To Read More Marlin Horst Posts Click Here
Lawyer Directory
BPFG: NEW AD TO ROTAE MONTHLY WITH BICOToronto Lawyers AssociationMKD InternationalFeldstein Family LawInfoware Canada Gene ColmanShekter Dychtenberg LLPBales Beall LLP