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w w w . C A N A D I A N L a w y e r m a g . c o m N O V E M B E R / D E C E M B E R 2 0 1 6 27 technology customers, always on the cutting edge, and they cer- tainly watch what's happening in the marketplace in terms of innovations," says Christine Ing, the co-practice group leader of information technology at Blake Cassels & Graydon LLP in Toronto. They're big spenders, too. In 2015, banks in North America spent US$62.2 billion on external IT, a figure expected to increase to US$64.8 billion by year end, said the Digital Finance Institute report. But banks face obstacles that smaller and defter upstarts do not. They are big, encumbered by large governance structures, costly infrastructure, competing interests and a lower risk appe- tite. "Fintechs frankly want to be nimble and not have a gover- nance structure that slows down the decision-making process," notes Kashif Zaman, a Toronto financial services lawyer with Osler Hoskin & Harcourt LLP. "That is something that sets them apart from big institutions that for good reason are a lot more prudent about engaging in certain types of activities." Some banks risk losing even more ground because they are relatively inefficient and are weighed down by supporting systems that date back several decades, often not even working with other systems within their own institution, a situation that would make fintechs recoil in horror. "It's about understanding what custom- ers want and whether the banks have the skills and technology to get there," highlights a recent PwC report. "If not, they should look to partner or collaborate with fintech disruptors." Canada's Big Six banks have heeded the advice. The dynam- ics between banks and financial technology companies shifted particularly over the past year, and Canadian banks began to employ parallel strategies, collaborating with and leveraging some fintechs while innovating to compete with others. The Canadian Imperial Bank of Commerce, for instance, entered a partnership to create a corporate innovation hub at MaRS, and then teamed up with online small business lender Thinking Capital in a refer- ral partnership. Scotiabank also jumped into the fray with an investment in Kabbage, a U.S.-based online small business lender. "In the longer term, there is definitely a view that there needs to be co-operation in working together in a space, and that fin- techs have a lot to offer to banks, and that both will benefit from working together and playing off each other's strengths," explains Badour. When banks do collaborate with fintechs, it usually starts off with a development and proof of concept, a stage when intellectual property licensing issues almost always surfaces, says Ing. If negotiations are fruitful, a commercialization agreement is drafted where the parties identify who's doing what and what role and responsibilities the actors have, she says. "Commercial agreements are very interesting because the business models are shifting as well so we have to pay attention to find out what the new normal is." Protecting intellectual property rights and filing patents has never been more important for Canadian financial institutions that historically have taken a rather lackadaisical view toward protecting their innovations. Interestingly, the legal landscape for fintech patents is currently more favourable in Canada than in the U.S. in the wake of the Alice and Mayo decisions by the U.S. Supreme Court, which heightened the requirements for inven- tions to be eligible for patent protection. But even then, Canadian patent offices and the courts have struggled to establish clear lines on what is and what is not patentable, says Giuseppina D'Agostino, law professor and founder and director of IP Osgoode. While the Federal Court of Appeal held five years ago that the Amazon.com "one-click" buy interface feature was a patentable subject matter, the Patent Appeal Board of Canada found several investor tools to be patent ineligible. Guidance provided by the Canadian patent office has not helped matters either. "The law and the guidance are not clear, so it's a challenge," says D'Agostino. Also opaque is the regulatory landscape for fintechs. Fintech, more so than many industries, is greatly influenced by the legal regime and, therefore, the laws and regulations will have a "sig- nificant impact" on the development of Canadian fintech, says Genevieve Pinto, a Vancouver business lawyer with McCarthy Tétrault LLP. Currently, technology upstarts do not deal with the same regulatory constraints as banks, a sore spot for some like Toronto-Dominion Bank chief executive Bharat Masrani, who earlier this year called on policymakers to level the playing field and regulate fintechs. Banks must play by the rules laid out by the Bank Act, which regulates prudential matters, including activities of financial institutions, corporate governance and ownership. Banks also have to answer to the Office of the Superintendent of Financial Institutions, a widely respected banking watchdog that issues guidelines and supervises and regulates federal financial institutions with a firm hand. The regulatory framework that governs banks yields certainty but can also make it challenging for banks to be agile and innovative. It would, however, be a misnomer to believe that fintechs oper- Check out in-house counsel's best networking tool! The 2016/17 Lexpert CCCA/ACCJE Directory & Yearbook online edition is a user-friendly, outstanding key resource for all in-house counsel. Along with immediate access to more than 4,100 listees at more than 1,500 organizations, you'll also find fresh editorial content, information on deals and links to important resources. Directory listees and CCCA members can also receive log-in credentials for access to detailed contact information to be able to connect with colleagues or research the in-house bar. ANYWHERE. ANYTIME. ANY DEVICE. CONNECT WITH IN-HOUSE COUNSEL COLLEAGUES AT LEXPERT.CA/CCCA Untitled-2 1 2016-10-27 4:21 PM

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