Innovating the finance sector

Status: The Financial Innovation Act received Royal Assent on April 29, 2022
Ministry Responsible: Treasury Board and Finance

Overview

The Financial Innovation Act (formerly Bill 13) diversifies Alberta’s economy by fostering innovation and attracting new investment in the financial and financial technology (fintech) sectors.

The Financial Innovation Act establishes a regulatory sandbox for financial services and fintech companies. A regulatory sandbox is a “safe space” in which companies can test innovative products or services, without immediately meeting all regulatory requirements. It also assists companies in collecting information on new products and services to determine if they have value for customers.

Alberta is the first province in Canada to establish a regulatory sandbox for the finance and fintech sectors, giving them new ways to build their business and create jobs. The province is also a growing destination for financial services and financial technology companies, and a regulatory sandbox increases our standing in this part of the global economy.

Alberta’s regulatory sandbox signals that Alberta is willing to work with and support innovators with cutting-edge products, like blockchain technologies and cryptocurrencies. Financial services and fintech companies will have a strong incentive to move to Alberta and Albertans will benefit by opening the door to a wider variety of products and services, which could lead to more competition and lower costs for consumers.

Key changes

The Financial Innovation Act:

creates a regulatory sandbox in Alberta to provide financial services and fintech companies a safe space to test innovative products and services
enables the Minister to:
- issue a certificate of acceptance to approved companies allowing them to be temporarily exempt from some laws and regulations
- impose terms, conditions and restrictions to provide oversight
establishes a regulation-making authority that would allow it to apply to other legislation if needed
requires public information about sandbox participants be published online

About the program

Learn more about Alberta’s Financial services and fintech regulatory sandbox.

Alberta’s Regulatory Sandbox
- While companies participating in the regulatory sandbox would be temporarily exempt from some laws and regulations in Alberta, they would still have to meet terms and conditions designed to protect consumers.
- Companies that participate in the regulatory sandbox may be exempt from some or all of the legal requirements set out in each of the following Acts:
  - Loan and Trust Corporations Act
  - Credit Union Act
  - ATB Financial Act
  - Consumer Protection Act
    - Exemptions to the Consumer Protection Act would also require approval from the Minister of Service Alberta.
  - Personal Information Protection Act
    - Exemptions to the Personal Information Protection Act would also require approval from the Office of the Information and Privacy Commissioner. This ensures personal information would be protected. Exemptions would also require approval from the Minister of Service Alberta.
  - Financial Consumers Act
- The Act includes a regulation-making authority that would allow it to apply to other legislation if needed. Additional Acts would have to be specifically named in a future regulation. The Ministers responsible for those additional Acts would also have to agree to exemptions from their legislation.
Acceptance criteria
- To participate in the regulatory sandbox, companies will have to meet each of the following criteria:
  - Physical presence requirement – Applicants will be required to maintain a physical presence in Alberta. This means applicants must have an office in Alberta or senior staff living in Alberta.
  - Financial services requirement – The regulatory sandbox is designed for companies that offer financial products or services.
  - Innovation requirement – Applicants must adequately explain how each eligible product or service is considered to be new and original, or a new adaptation or material improvement of another product or service. Applicants will not receive exemptions for products or services that are offered in Alberta by other companies.
  - Business plan requirement – Applicants must provide a sound and viable business plan, including details for testing their financial product or service and plans to exit the regulatory sandbox.
- The Minister may also require applicants to provide any additional information the Minister determines necessary to consider their application.
- In addition to the criteria above, the President of Treasury Board and Minister of Finance will only issue certificates of acceptance to applicants that, in the Minister’s opinion:
  - will offer a financial product or service that provides a net benefit to the public
  - have senior leadership and/or partners that are fit to character and competence
  - demonstrate reasonable consumer protection arrangements
  - will operate in a safe and sound manner
  - meet any additional criteria that may be prescribed in a regulation under the Act
- The Minister will issue a certificate of acceptance to companies that are approved for entry into the regulatory sandbox. This provides evidence that an entity has met the eligibility criteria.
- Certificates of acceptance will set out:
  - any legislative exemptions granted to the approved sandbox participant
  - any terms, conditions and restrictions imposed on the participant
  - the issue date and expiry date of the certificate of acceptance
Conditions and requirements
- The Minister may impose terms, conditions or restrictions on a company’s certificate of acceptance. Terms, conditions and restrictions may be used to ensure a company has proper oversight and is not taking on undue risk for itself, its customers or the broader financial sector.
- Terms, conditions and restrictions may include requirements to:
  - consult a qualified expert or auditor
  - limit the number of customers who can purchase the product or service being tested
  - have an appropriate amount of capital to support the venture
  - provide proof of appropriate insurance coverage
  - implement specific financial security or surety requirements to mitigate risk and losses
  - implement risk management policies and procedures
  - maintain a consumer complaint mechanism that allows consumers to resolve concerns
- The Minister may amend the terms, conditions and restrictions that appear on a company’s certificate of acceptance, including adding new terms or removing existing ones.
- The Minister may require sandbox participants to provide the following information to consumers in the form and manner that the Minister deems appropriate:
  - the name and a description of the sandbox participant
  - that the sandbox participant has been issued a certificate of acceptance under this Act and the expiry date of the certificate of acceptance
  - a description of the financial product or service being offered in the regulatory sandbox
  - a description of the regulatory sandbox framework
  - any legislative exemptions provided to the sandbox participant
  - any terms, conditions and restrictions on the sandbox participant’s certificate of acceptance
  - contact information for the sandbox participant and the relevant office of the Government of Alberta for the purpose of filing a consumer complaint
  - if a sandbox participant’s certificate of acceptance has been revoked or cancelled
  - any other information that, in the opinion of the Minister, is reasonable to require
Oversight, offences and penalties
- Sandbox participants will be required to submit an annual return to the government for every year they participate in the regulatory sandbox, and for the year following their time in the regulatory sandbox.
  - Annual returns are already a common requirement for corporations under the Business Corporations Act. They typically provide key corporate information, including office address, director information and financial statements.
  - This will help the government monitor the regulatory sandbox’s impact while also ensuring participants are operating safely and responsibly.
- Sandbox participants will also be required to maintain corporate and financial records.
- The Minister may appoint someone to conduct an examination of a sandbox participant (or its corporate partners if applicable). The Minister has flexibility in determining who the examiner should be.
- The power to examine entities is a common tool for financial sector regulators. Examination powers allow regulators to assess any aspect of the business or affairs of a sandbox participant to determine:
  - if the sandbox participant is, or was, following sound business and financial practices during their time in the regulatory sandbox
  - the management procedures and standards of the sandbox participant during their time in the regulatory sandbox
  - if the sandbox participant is, or was, in compliance with this Act, regulations under the Act, any order under this Act and any term, condition or restriction imposed on the sandbox participant
- The Information and Privacy Commissioner may also appoint an examiner in cases involving exemptions under the Personal Information Protection Act.
- A person is guilty of an offence if they contravene any provision of the Act or regulations under the Act, or an order or direction made according to the Act. This includes failing to comply with the terms, conditions or restrictions on a company’s certificate of acceptance.
- Fines for offences under the Act can be up to:
  - $100,000 for the first conviction
  - $200,000 for each subsequent conviction.
- These penalties are similar across all financial sector legislation (Loan and Trust Corporations Act, Securities Act, Insurance Act, and the Credit Union Act).
Public information
- The government will make the following information public on a website:
  - the name of each sandbox participant issued a certificate of acceptance
  - a description of the product or service each sandbox participant is offering through the regulatory sandbox
  - a list of regulatory exemptions provided to each sandbox participant
  - any terms, conditions or restrictions imposed by the Minister on a sandbox participant
  - the expiry date (including any extension) of each participant’s certificate of acceptance
  - any amendment, revocation or cancellation of a certificate of acceptance
- The government will publish the information above after a certificate of acceptance is issued or amended to a sandbox participant. The information will remain online until one year after the sandbox participant’s time in the regulatory sandbox has ended.