Canadian Lawyer InHouse

31 CANADIANLAWYERMAG.COM/INHOUSE MARCH 2017 I n d u s t r y S p o t l i g h t such fi rms may be small fi sh now, but which of them will become the next PayPal? Those that do will need legal advice to help them get there. The fi nancial sector is perhaps one of the most heavily regulat- ed in the country, as Mogo knows all too well. The Vancouver-based online lending company completed its initial public offer- ing on the Toronto stock exchange for $50 million in June 2015. Its journey has taken it through many regulatory hurdles, explains the fi ntech company's chief administrative and legal offi cer, Lisa Skakun. "Even though we're not a traditional bank in that deposit-taking world, we are regu- lated," she says, pointing out that lending companies fall within consumer protection regulation and that its marketing activities subject it to the Competition Act. As Mogo just launched into the mortgage brokering business, it also incurs regulation related to this industry at the provincial level. Anti-money-laundering and know-your- client technologies — collectively called "regtech" — jostle alongside technologies covering payments, investing, cryptocur- rencies and even insurance in their bid to disrupt fi nancial services companies. Robo- advisers tackling wealth management must navigate securities laws. "The primary challenge to fi ntech fi rms is the gap between what the laws permitted before the technology existed and the solu- tions new technology can bring that weren't previously possible," says Michael Holder, associate general counsel and chief compli- ance offi cer of Toronto-based robo-advisor fi rm Wealthsimple. "The pace of technol- ogy is faster than the legislative process." The regulatory framework is relatively patchy, due in large part to the breadth of the fi ntech sector and the pace of develop- ment. This can leave fi ntech fi rms strug- gling to understand how regulations apply to their business model, which can span a variety of subsectors. "Understanding which of those layers need to be pulled back and which ones don't apply is a real challenge," says Gregg Aa- moth, CEO of POPcodes, a Calgary-based fi ntech startup that uses technology to de- liver loyalty programs and in-store pickup via point-of-sale terminals. Resolving these uncertainties is where lawyers can offer real value to clients, explains Kristen Thompson, partner in the national technology practice at McCarthy Tétrault LLP in Toronto. She adds that Canadian reg- ulators have been slow to engage fi ntech, but it's not because they aren't interested. "Regulators don't want to rush ahead to regulate as has been done in some cases," she says, citing the introduction of strict "BitLicense" regulations in New York State to manage cryptocurrency as an example. Instead, a soft step is preferable. The Canadian government has empha- sized fact gathering in its approach to fi n- tech-related issues. In 2015, the Department of Finance issued a consultation paper on national retail payment systems, for exam- ple, while the Competition Bureau launched a study in May last year focusing squarely on fi ntech innovations. At the provincial level, the Ontario Secu- rities Commission is leading the pack with its LaunchPad initiative, says Stephen Redi- can, business department leader in the To- ronto offi ce at Borden Ladner Gervais LLP. "This is not an incubator or a sandbox," he explains. "It's more of an ability for fi n- tech companies to speak with the regulator in a non-legal way to determine what they need to do to comply with securities laws in The primary challenge to fi ntech fi rms is the gap between what the laws permitted before the technology existed and the solutions new technology can bring that weren't previously possible. MICHAEL HOLDER, Wealthsimple

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