Monday, November 25, 2024

Fintech In Canada Q3 2024

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CSA Extends Deadline to Delist Stablecoins

The Canadian Securities Administrators (CSA) has once again
extended the deadline for registered crypto-trading platforms to
address trading in value referenced crypto assets (VRCAs).

VRCAs, better known as “stablecoins”, are crypto
assets designed to maintain a stable or pegged value relative to a
specified fiat currency or other asset. Stablecoins have become
popular with crypto investors and are frequently used to facilitate
the trading, borrowing and lending of other crypto assets.

In February 2023, the CSA published guidance indicating that VRCAs may constitute
securities or derivatives under Canadian securities law. The CSA
noted that investors had suffered harm from the collapse of
unregulated VRCAs. The CSA also expressed concern that investors
were not receiving sufficient disclosure and that issuers may not
be maintaining a sufficient reserve of assets to back a specific
VRCA in an unregulated environment.

In light of these concerns, the CSA required crypto-trading
platforms seeking registration with provincial securities
regulators to conduct enhanced due diligence to ensure that the
issuer of a specific VRCA maintains an appropriate reserve of
assets, and to ensure that issuers provide more disclosure about
their governance, operations and reserve of assets to
investors.

In further guidance, published in October 2023, the CSA
expanded on its interim regulatory regime for VRCAs. It also
indicated that it would require regulated crypto-trading platforms
to delist VRCAs by December 29, 2023, with any VRCAs referenced to
the value of a single fiat currency (FBCAs) to be delisted by April
30, 2024. The deadline to FBCAs was subsequently extended to October 31, 2024.

Now, with the revised deadline pending, the CSA has once again
extended the deadline for registered
crypto-platforms to delist FBCAs to December 31, 2024. The CSA has
invited crypto platforms to seek exemptive relief or propose
alternatives to address the CSA’s investor protection concerns,
provided those proposals could be substantially implemented by
December 31, 2024.

The CSA’s willingness to extend the deadline to delist FBCAs
in response to feedback from industry participants appears to
reflect a recognition that FBCAs have become an important and
popular tool in the crypto economy. Since other Canadian regulators
have not moved to regulate FBCAs, the CSA and provincial securities
regulators continue to search for ways to facilitate transactions
in FBCAs through registered crypto platforms, while addressing
underlying investor protection concerns.

Bank of Canada Registration for Payment Services Providers to
be Open from November 1-15, 2024

Retail payment service providers (PSPs) doing business in Canada
should be aware of the upcoming November 1-15, 2024, temporary
registration window for the new regulatory framework under the
Retail Payments Activities Act (RPAA) that we have written about in
prior quarterly updates.

In order to carry on business as a PSP when the transition
period expires in September 2025, PSPs will need to register with
the Bank of Canada while a temporary registration window is open
from November 1, 2024, to November 15, 2024. PSPs that fail to
register during the November 2024 period can register later but
must submit their registration at least 60 days before they start
conducting retail payment activities. Registrations are made
through PSP Connect on the Bank of Canada website.

To determine if registration is necessary, potential PSPs should
consider the four-step application test outlined by the Bank of
Canada which we have detailed previously. To assist with this
determination, the Bank of Canada has also recently released new “case scenario” fact patterns to
help entities determine whether they will be subject to regulation
as PSPs.

It is crucial for PSPs to use the period between now and the
expiry of the temporary registration period on November 15 to
assess whether the RPAA applies and to proactively prepare to meet
these requirements. The Bennett Jones Financial Services group can
support clients navigating this complex framework.

AI and Innovation in Payments Dominate Money20/20

Money20/20 USA, the world’s leading fintech show, just
wrapped up in Las Vegas. The event welcomed over 10,000 attendees
from over 90 countries. It featured the biggest and the most
innovative names in financial services who discussed the
industry’s most pressing challenges and opportunities.

We attended the show and two themes that dominated the dialogue
were the role of artificial intelligence (AI) and innovation in
payments.

AI

AI was talked about from start to finish and at all points in
between at Money20/20. The theme was so pervasive that the
conference itself even had its own AI personality (Aiana) that was
integrated into some of the sessions.

There was no debate that AI promises to bring earth-shifting
changes to the financial services industry. But there was a lot of
discussion on how to deploy it effectively while maintaining trust
in the use of the technology.

A session called “The killer GenAI cake ingredients:
BigTech, FinTechs, Unicorns and Banks” focused on how to
practically integrate GenAI (recipes, processes, ingredients) into
a company’s operations. It was emblematic of broader
discussions happening at Money20/20. The opportunities are known
but the industry is wrestling with how to get there—how to
actually bake the cakes.

U.S. Securities and Exchange Commission Chair Gary Gensler
joined a fireside chat about the rise and dangers of AI washing.
Gensler says that companies need to be truthful about their use of
AI and associated risks. They should not mislead the public by
saying they are using an AI model when they are not, or say they
are using an AI model in a particular way but are not doing so.

Innovation in Payments

This year’s Money20/20 also highlighted innovation in
payments. For just over a year now, the U.S. Federal Reserve’s
new system for instant payments (Real-Time-Rail), FedNow, has been
in operation. The service allows for the immediate clearing and
settlement of money transfers any time of the day, any day of the
year.

Over 1,000 financial institutions are currently live on the
FedNow Service. Mark Gould, chief payments executive for Federal
Reserve Financial Services, spoke about the momentum of FedNow and
the benefits of instant payments in catalyzing new opportunities
for businesses—such as gaining more control over cash flow
and precise timing of payments. Quicker insurance payouts and
instant wage payments through early wage access were just two
applications of Real-Time-Rail cited by FedNow. We can expect to
see even greater innovation in payments as fintechs and financial
institutions identify new opportunities to harness instant payments
in ways not previously possible.

Looking ahead, Gould describes this “as the most dynamic
decade for payments in history.”

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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