Investment Executive | By Rudy Mezzetta | August 16, 2017

The Department of Finance Canada has committed to reviewing banking legislation to make it easier for both banks and financial technology (fintech) firms to offer clients expanded technology services while maintaining consumer protections and the prohibition against banks engaging in commercial activities unrelated to financial services.

"Clarifying the fintech business powers of financial institutions and removing obstacles to collaboration between fintechs and financial institutions can help to accelerate innovation, potentially making the sector more accessible and affordable to Canadians," Finance Canada indicated in its second consultation paper released last week as part of its review of the federal financial services sector framework.

The review is part of the updating, which occurs every five years, of the Bank Act, the Insurance Companies Act, and the other statutes that govern federal financial services institutions. The sunset date on the current legislation is March 2019. The first consultation paper was published last year, and the deadline for comments on this second and final consultation paper is Sept. 29.

See: 

• Canada's Fintech Adoption Rate Doubles in 18 Months
• LendIt Europe 2017 (Oct 9-10): Don't Miss Europe's Largest International Lending; Fintech Event

In the near term, Finance Canada will review ways it might:

> Update the rules around fintech activities banks are allowed to do. For example, current statutes use terms such as "portal" or "platform" to describe additional information processing activities a bank may do in-house with approval. These terms may be difficult to apply to emerging business models, Finance Canada says.

> help banks and fintech to collaborate in order to encourage the "cross-pollination" of ideas and to foster growth and innovation. Finance is asking for comments on whether to provide banks with additional flexibility to make non-controlling investments in fintechs and the corresponding authority to make referrals, subject to consumer protection, prudential, and commercial activities limitation.

Streamline the "entry and exit framework" for fintechs. This refers to the process by which a fintech firm can enter the financial services sector to serve an underserved market, or exit the sector if business plans change. Finance Canada is considering refinements to the current framework, including allowing the Office of the Superintendent of Financial Institutions (OSFI) to extend the period to issue an order to commence and carry on a business in certain circumstances.

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