BCSC Call for Comment: Securities and the Future of Fintech

BCSC Call for Comment: Securities and the Future of Fintech

BCSC Call for Comment: Securities and the Future of Fintech

The British Columbia Securities Commission (the “BCSC” or the “Commission”) has requested public comment on the future of financial technology (“Fintech”).

In a notice BCN2018/01 issued on February 14, 2018, the Commission sets out the results of its prior consultations and requests further comments on potential regulatory action to clarify or modernize securities laws in the hopes of creating a competitive regulatory environment. The Commission has identified the following as priority issues:

1. Regulatory and Access Hurdles
2. Expansion of Crowdfunding
3. Status of Cryptocurrencies

1. Regulatory and Access Hurdles

Regulatory requirements, in particular the lack of communication, lack of harmonization between provinces and compliance costs, were viewed as significant impediments to developing a successful business.

To help address these issues, the Commission, in January 2017, established its Tech Team to directly work with Fintech companies and to consider admissions to the Canadian Securities Administrators’ Regulatory Sandbox, a testing ground for new products.

The Commission was also asked to address the issue of the limited pool of capital available, as well as, the low risk appetite of investors in the market.

2. Expansion of Crowdfunding 

Start-ups have expressed a desire for an expansion of crowdfunding, especially by:

  • Increasing investor limits;
  • Allowing the issuance of a broader range of securities (such as convertible preference shares);
  • Harmonization of crowdfunding regimes across Canada; and
  • Streamlining know your client (KYC) requirements for funding portals.
3. Status of Cryptocurrencies

The BCSC has indicated of a departure from the stringent policies of the past that constrained innovation. The Commission is interested in using exemptive relief as a tool to enable efficient capital raise, while providing sufficient investor protection.

The Commission has indicated the following factors to be used in determining whether a token will be considered a security:

  • Existence of a secondary coin or token market;
  • Whether the purchase of a coin or token is for utility or speculation;
  • Is there substantial functional differences to categorize the token or coin as a form of non-securities crowdfunding;
  • Is the token’s utility function available at the time of sale; and
  • Whether the business conducting an Initial Coin Offering (ICO) has created an impression that the coin is an investment contract or profit opportunity.

The Commission is considering reviewing novel fintech business models before they can operate, in order to quicken the pace of approvals and exemptions. While there is recognition that a regime that permits exploration without review or prior approval could facilitate innovation on a timelier basis, a lack of appropriate controls could also compromise investor protection.

BCSC is interested in exploring other options for approval or licensing new innovation, interested parties are invited to make written submissions to the BCSC on or before Tuesday, April 3, 2018.

– Ray Frank

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