ASIC Fintech Exemption: A Model For Canada?

Authors: Kimberly Burns, Tessa Rowland

The British Columbia Securities Commission (BCSC) recently published a Notice and Request for Comment on a wide range of topics pertaining to the regulation of the burgeoning fintech industry.

One of the topics the BCSC explored was how fintech is regulated internationally, with a view to considering these international models for Canada. In particular the BCSC examined how the Australian Securities and Investments Commission (ASIC) treated fintech companies and posed the question of whether a similar treatment for British Columbian or Canadian fintech companies would be beneficial.

Under the ASIC regulations,  eligible fintech companies are granted a 12-month fintech licensing exemption to offer fintech services without complying with securities regulation, though there are some limitations in scope. This exemption, announced in 2016, was the first of its kind globally. There is no application process to operate under the exemption, eligible companies simply need to notify the ASIC that they will be relying on the exemption for the upcoming 12-month period. At the end of the exemption period, companies will either need to cease operations or have successfully applied for the applicable licence.

The licensing exemption permits the fintech business to give advice regarding, or deal in, certain products prescribed by the regulations. The products are listed or quoted Australian securities; debentures, stocks, or bonds issued or proposed to be issued by the Australian government; simple managed investment schemes; deposit products; certain kinds of general insurance products; and, payment products issued by authorized deposit-taking institutions.

The terms of the exemption include limiting the above services to up to a maximum of 100 retail investors (there is no limit for wholesale clients, which is Australia’s equivalent to accredited investors), maintaining prescribed monetary maximums to which any given client may be exposed, implementing consumer protection measures, abiding by insurance requirements, and imposing mandatory dispute resolution systems. Companies are also required to inform their customers that they don’t hold a licence and are operating under the fintech licensing exemption. By mandating these restrictions, the ASIC seeks to decrease the market risk posed by fintech companies operating under the exemption, and protect retail investors. The conditions are designed to minimize any potential risk posed to customers as this new industry is explored, while encouraging companies to facilitate innovation.

This model would be an innovative framework for the Canadian fintech landscape if a similar exemption was adopted here. Unlike regulatory sandboxes in other countries, the unique quality of this exemption is that it requires no application from companies seeking its benefit. This creates space for junior start-up companies in the fintech industry to provide certain services freely to customers without the administrative burden that accompanies regulatory registration.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.