As a country of early adopters, Canada has consistently demonstrated its prowess in both the traditional banking sector and the world of fintech. The World Economic Forum has frequently lauded Canada’s banking system as the world’s soundest, a testament to the country’s commitment to financial stability.
But Canada’s fintech story goes beyond just stability. Canadians have a reputation for being quick to embrace new technologies, from the early days of ATMs to the present era of digital banking, making it the perfect testbed for fintech innovation.
Looking back at 2021, the Canadian fintech landscape witnessed a record-breaking surge in investment, with CA $9.4 billion invested across 217 deals. In 2022, amid the global ‘VC Winter,’ Canada managed to maintain its fintech momentum with 169 fintech investments totalling CA $1.75 billion
Names like Shopify, Wave, Freshbooks, Dapper Labs, Wealthsimple, Payfirma, Quandl, Cryptologic, and Mogo are Fintech companies with their roots firmly planted in Canadian soil.
Fintech businesses in Canada may require licenses depending on their activity, and they may also further need compliance with regulatory obligations such as KYC, financial reporting, and cybersecurity.
Different regulatory requirements apply to various fintech activities, such as lending, factoring, invoice discounting, secondary market loan trading, yield-generating products, deposits, and trust company-type services. Here are some examples of popular fintech sub-sectors with Canadian regulations:
Consumer lending is regulated in Canada but not as strictly as in some other countries. Regulations vary based on the entity providing consumer credit:
Provincially, payday lenders and certain consumer lenders require licensing or registration in most provinces. Some provinces are implementing high-cost credit legislation, which can also impose licensing requirements.
The regulation of secondary market loan trading depends on whether the loan instruments are considered securities. Loans acquired in the secondary market are more likely to be treated as securities than original loans.
Collective investment schemes, known as ‘investment funds’ in Canada’s securities regulations, fall under provincial securities laws. Operators of these schemes may need investment fund manager registration, along with dealer, adviser, and prospectus requirements. Compliance with reporting and conduct requirements also applies.
Managers of alternative investment funds (AIFs) are regulated in Canada. They must register as investment fund managers and comply with relevant regulations, including prospectus requirements, dealer registration, and compliance with disclosure regulations for offering documents and post-trade reports. AIFs have more flexibility in investment strategies compared to conventional investment funds.
P2P lending businesses in Canada may need to register as dealers with the provincial securities regulators where they operate. This registration can come with compliance obligations, including limiting investment opportunities to qualified accredited investors. Some P2P lenders have secured exemptions from certain requirements, such as prospectus filing obligations, through provincial securities legislation.
Apart from financial regulations, fintech businesses that provide banking, consumer credit and insurance services, or capital-raising services, will also find themselves subject to more general business regulations, such as privacy laws (PIPEDA or Canada’s Anti-Spam Legislation), anti-money laundering laws, and consumer protection laws.
In June 2022, the government introduced the Digital Charter Implementation Act, 2022 (Bill C-27), which could change privacy and data protection laws in Canada. If passed, it would replace part of PIPEDA with the Consumer Privacy Protection Act (CPPA) and introduce regulations for artificial intelligence systems through the Artificial Intelligence Data Act (AIDA).
Canada is an attractive destination for fintech startups. There are many notable trends that support the growth of fintech including open banking initiatives, payments technology advancements, and cryptocurrency developments.
The proof is in the pudding! Browse through 10 of the most promising and exciting Canadian fintech companies and the funding they’ve secured to transform into global fintech leaders:
