Playing in an innovation sandbox

Two sides of the FinTech coin

In 2008, when the financial crisis was spreading from country to country, one of the things that helped protect Canada was our regulatory system. And while that regulation can provide some safety, it can also be restrictive. That is especially the case in the high-tech industry, where innovation is a goal in itself.

One proposed idea is a middle ground between a rigid regulation and a total free-for-all: a regulatory sandbox.

Bank of Canada Senior Deputy Governor Carolyn Wilkins. (Blair Gable/Reuters)

Carolyn Wilkins is the Senior Deputy Governor of the Bank of Canada. In that role, she oversees the Bank's strategic planning and operations, and shares responsibility for monetary policy.

Carolyn says, "many central banks and other authorities have put together a regulatory sandbox, which allows financial institutions or innovators to test out their ideas." 

The Bank of Canada currently is running a fintech (or "financial technology") experiment called "Project Jasper", which allows banks to pay each other using Blockchain, the distributed ledger technology that fuels Bitcoin.

"We are clearly on the cusp of a defining moment when it comes to fintech, just because of the scope with which financial innovation is occurring," Carolyn says. "We think there's a role for the official sector to play in the development of this technology. Not to get in the way of this technology, but to make clear what the kinds of expectations and parameters might be there as these systems become more and more important, so that the innovators can just build them in right from the get-go."

Deputy Governor of the Bank of Canada, Carolyn Wilkins, on regulating the financial technology industry. 8:03
Ray Sharma is a venture capitalist at Extreme Venture Partners (Nora Young/CBC)

One of those innovators is Ray Sharma. Ray is one of Canada's most influential venture capitalists, and his investments include a fintech startup called Crowd Matrix.

Ray says that, "it's actually regulation that is holding back a lot of this innovation." While centres, like London, England, have vibrant financial technology industries, Ray says that Canada, and especially Toronto, is well behind what it could be.

"We have, in the Greater Toronto Area, these academic institutions that are unique. We have an unbelievable talent base. We have the Toronto Bay Street community. The combination of all those things means that Toronto should be able to come back relatively quickly and be in a position of strength."

While regulation has helped shield Canada from dangers in the past, Ray suggests that if Canada continues to lag behind in fintech, it could affect our economy overall.

"We're in a unique period of time in human history when it comes to innovation. The quid pro quo of being behind in financial services is that I think it will affect our fundamental productivity."

"It's amazing that the financial institutions have allowed the innovation to take this long to really take effect on them," Ray says. "They've been able to withstand a lot of the forces of innovation that a lot of the other organizations have felt. The question really is, why did it take so long?"

Venture Capitalist Ray Sharma on the potential of Canada's financial technology industry, and why rigid regulations are holding it back. 11:12


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