Fintech in Canada Q3 2024

November 07, 2024

Written By Matthew Flynn, Simon Grant, Kim Lawton, Cheryl Woodin, Robert Staley and Doug Fenton

CSA Extends Deadline to Delist Stablecoins 

The Canadian Securities Administrators (CSA) has once again extended the deadline for registered crypto-trading platforms to address trading in value referenced crypto assets (VRCAs).

VRCAs, better known as "stablecoins", are crypto assets designed to maintain a stable or pegged value relative to a specified fiat currency or other asset. Stablecoins have become popular with crypto investors and are frequently used to facilitate the trading, borrowing and lending of other crypto assets.

In February 2023, the CSA published guidance indicating that VRCAs may constitute securities or derivatives under Canadian securities law. The CSA noted that investors had suffered harm from the collapse of unregulated VRCAs. The CSA also expressed concern that investors were not receiving sufficient disclosure and that issuers may not be maintaining a sufficient reserve of assets to back a specific VRCA in an unregulated environment.

In light of these concerns, the CSA required crypto-trading platforms seeking registration with provincial securities regulators to conduct enhanced due diligence to ensure that the issuer of a specific VRCA maintains an appropriate reserve of assets, and to ensure that issuers provide more disclosure about their governance, operations and reserve of assets to investors. 

In further guidance, published in October 2023, the CSA expanded on its interim regulatory regime for VRCAs. It also indicated that it would require regulated crypto-trading platforms to delist VRCAs by December 29, 2023, with any VRCAs referenced to the value of a single fiat currency (FBCAs) to be delisted by April 30, 2024. The deadline to FBCAs was subsequently extended to October 31, 2024.

Now, with the revised deadline pending, the CSA has once again extended the deadline for registered crypto-platforms to delist FBCAs to December 31, 2024. The CSA has invited crypto platforms to seek exemptive relief or propose alternatives to address the CSA's investor protection concerns, provided those proposals could be substantially implemented by December 31, 2024.

The CSA's willingness to extend the deadline to delist FBCAs in response to feedback from industry participants appears to reflect a recognition that FBCAs have become an important and popular tool in the crypto economy. Since other Canadian regulators have not moved to regulate FBCAs, the CSA and provincial securities regulators continue to search for ways to facilitate transactions in FBCAs through registered crypto platforms, while addressing underlying investor protection concerns.

Bank of Canada Registration for Payment Services Providers to be Open from November 1-15, 2024 

Retail payment service providers (PSPs) doing business in Canada should be aware of the upcoming November 1-15, 2024, temporary registration window for the new regulatory framework under the Retail Payments Activities Act (RPAA) that we have written about in prior quarterly updates.

In order to carry on business as a PSP when the transition period expires in September 2025, PSPs will need to register with the Bank of Canada while a temporary registration window is open from November 1, 2024, to November 15, 2024. PSPs that fail to register during the November 2024 period can register later but must submit their registration at least 60 days before they start conducting retail payment activities. Registrations are made through PSP Connect on the Bank of Canada website.

To determine if registration is necessary, potential PSPs should consider the four-step application test outlined by the Bank of Canada which we have detailed previously. To assist with this determination, the Bank of Canada has also recently released new “case scenario” fact patterns to help entities determine whether they will be subject to regulation as PSPs.

It is crucial for PSPs to use the period between now and the expiry of the temporary registration period on November 15 to assess whether the RPAA applies and to proactively prepare to meet these requirements. The Bennett Jones Financial Services group can support clients navigating this complex framework.

AI and Innovation in Payments Dominate Money20/20 

Money20/20 USA, the world’s leading fintech show, just wrapped up in Las Vegas. The event welcomed over 10,000 attendees from over 90 countries. It featured the biggest and the most innovative names in financial services who discussed the industry’s most pressing challenges and opportunities.

We attended the show and two themes that dominated the dialogue were the role of artificial intelligence (AI) and innovation in payments.

AI

AI was talked about from start to finish and at all points in between at Money20/20. The theme was so pervasive that the conference itself even had its own AI personality (Aiana) that was integrated into some of the sessions.

There was no debate that AI promises to bring earth-shifting changes to the financial services industry. But there was a lot of discussion on how to deploy it effectively while maintaining trust in the use of the technology.

A session called “The killer GenAI cake ingredients: BigTech, FinTechs, Unicorns and Banks” focused on how to practically integrate GenAI (recipes, processes, ingredients) into a company’s operations. It was emblematic of broader discussions happening at Money20/20. The opportunities are known but the industry is wrestling with how to get there—how to actually bake the cakes. 

U.S. Securities and Exchange Commission Chair Gary Gensler joined a fireside chat about the rise and dangers of AI washing. Gensler says that companies need to be truthful about their use of AI and associated risks. They should not mislead the public by saying they are using an AI model when they are not, or say they are using an AI model in a particular way but are not doing so.

Innovation in Payments

This year’s Money20/20 also highlighted innovation in payments. For just over a year now, the U.S. Federal Reserve’s new system for instant payments (Real-Time-Rail), FedNow, has been in operation. The service allows for the immediate clearing and settlement of money transfers any time of the day, any day of the year.

Over 1,000 financial institutions are currently live on the FedNow Service. Mark Gould, chief payments executive for Federal Reserve Financial Services, spoke about the momentum of FedNow and the benefits of instant payments in catalyzing new opportunities for businesses—such as gaining more control over cash flow and precise timing of payments. Quicker insurance payouts and instant wage payments through early wage access were just two applications of Real-Time-Rail cited by FedNow. We can expect to see even greater innovation in payments as fintechs and financial institutions identify new opportunities to harness instant payments in ways not previously possible.

Looking ahead, Gould describes this “as the most dynamic decade for payments in history.”

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