Debate over regulating fintechs heats up in Canada and the U.S.

Debate about whether and the way to regulate rapidly proliferating fintech companies heated up on both sides from the border Thursday, as the chief executive of Toronto-Dominion Bank called for increased oversight in Canada and an arm of the U.S. Treasury signalled intends to pursue a regulatory framework in that country.

Speaking at his bank’s annual meeting in Montreal, TD’s Bharat Masrani reiterated his call, first made this past year, for regulating online financial services firms that are now competing in traditional bank businesses like lending and payments.

“The need is becoming much more evident,” Masrani told shareholders at this year’s gathering. “Security breaches – service interruptions – and solvency issues have plagued a number of fintechs.”

Related

Canada is top priority, U.K. startup GoCardless says of its bid to consider its technology towards the world’s banksBattle with fintech could be bruising for giant banksCanadian banks embracing fintech even while global CEOs see threat in technology: PwC

In a message that seemed aimed at both shareholders and policymakers, Masrani said consumers “must have the same assurances” round the security of their funds and their personal data regardless of whether they’re handling a traditional bank or a fintech firm.

“That’s why In my opinion it might be appropriate for policymakers to think about a regulatory environment that ensures the security of customer information and also the integrity in our economic climate,” he said.

The 24 hour, work of the Comptroller from the Currency, a completely independent bureau of the U.S. Department of the Treasury, announced plans to establish a framework for regulating fintech without stifling the innovation which has driven the sector.

Thomas J. Curry, Comptroller of the Currency, said the OCC needs “responsible innovation combined with the supervision that supports it.”

“Innovation isn’t free of risk, however when managed appropriately, risk should not impede progress,” he explained.

Speaking with media following the annual meeting, Masrani declined to state which regulator or regulators in Canada he thinks should set rules for fintech firms, or elaborate on any specific incidents involving solvency issues or data breaches at fintech firms.

The main regulator for Canadian banks may be the Office from the Superintendent of Financial Institutions (OSFI), which monitors the safety and soundness of banks, insurers and trust companies.

But fintechs – which Masrani said number within the thousands – aren’t regulated by OSFI. And that won’t change unless legislative changes were brought forward through the Department of Finance, according to OSFI spokesperson Annik Faucher.



“Under our current mandate, OSFI isn’t mandated to manage fintechs,” she said.

In the United States, the U.S. Consumer Financial Protection Bureau (CFPB) continues to be taking an active role in monitoring the fintech sector.

In March, Iowa-based fintech firm Dwolla Inc. decided to pay a US$100,000 financial penalty this month following the consumer protection bureau alleged the peer-to-peer online payments system provider had didn’t adopt and implement “reasonable and appropriate” data security policies and procedures managing the collection, maintenance, or storage of consumers’ private information. There was no report of the breach in that case.

On March 7, the customer protection bureau announced it might begin accepting complaints from consumers “encountering problems with loans from online marketplace lenders.”

The rise of financial technology firms has so far had little tangible impact on the underside lines of traditional banks. But investment in fintechs is growing and major banking institutions in the U.S., the uk, and Canada, have started to take the threat seriously. Most are developing their very own competitive technology plus some are even forging partnerships with the upstarts.

A report from EY in January said Canadian adoption rates of financial services products developed by fintech firms could triple within a year -albeit from a low base.

Andrew Graham, the chief executive of Toronto-based online lender Borrowell, said fintech firms like his need room to grow – no more regulation.

“The the truth is that financial services in Canada remain highly concentrated and, for the big incumbents, highly profitable. Canadians deserve more choice, not less,” he explained, adding that his firm has already been controlled by “different legislation and regulators in every province.”

Despite his potentially high stakes push for greater regulation of the new industry segment, Masrani dismissed the most popular characterization of the competition between banks and fintechs as an “epic battle.”

However, he told shareholders, TD is ready to compete.

The bank is developing its own technology aimed at customers looking for easy access to banking services. For instance, a brand new app called TD MySpend will be launched shortly to provide customers with a real-time snapshot of the finances on a smartphone, he said.

TD will also be among the banks which are ready to work “side-by-side” using the tech-based firms where it seems sensible, Masrani said.

“We engage with a wide range of firms who are able to support our mission to seamlessly match the needs and wants of each and every customer. We collaborate with start-ups,” he told shareholders.

The Canadian bank has opened TD-Cisco Lab, a partnership formed with the tech firm to collaborate on projects “to boost the banking experience.” TD can also be a part of a global group of banking institutions looking at how to operate the blockchain technology behind virtual currency Bitcoin for secure data management, Masrani said.

bshecter@nationalpost.com

Twitter.com/BatPost