If passed, Bill 13, the Financial Innovation Act, will create a regulatory sandbox for financial services and fintech companies. Regulatory sandboxes offer businesses temporary relief from certain legislative and regulatory requirements, making it simpler for them to test new products and services and expand their offerings to consumers.
This proposed legislation signals that Alberta is willing to work with innovators and businesses that are developing cutting-edge products and technologies. The sandbox would be the first of its kind in Canada, meaning financial services and fintech companies will have a strong incentive to move to Alberta. It would also benefit Albertans by opening the door to a wider variety of products and services, which could lead to more competition and lower costs for consumers.
“The world of finance is rapidly evolving, and our government understands that we need to partner with businesses if Alberta is going to stay ahead of the curve. Cutting red tape and making it easier to do business in Alberta is a crucial part of our strategy to grow the economy, support job creation and make Alberta the best place to live, work and raise a family.”
“This legislation is a game-changer for our industry. It shows Alberta is leading the way as a destination for blockchain technology and innovation. Bill 13 will streamline the legislative and regulatory process, making it more viable for companies to bring their ideas and businesses to life.”
“Ensuring Alberta’s financial system is modern, competitive and stable is essential to strengthening and growing our economy. Alberta credit unions support the government’s financial services regulatory sandbox and the significant potential it brings for innovation in our province’s financial services sector.”
In general, before companies can begin to offer new products and services to the public, they have to devote a significant amount of resources to meeting regulatory requirements. When the new product or service finally hits the market, there is still a risk that it won’t work as they intended or that it won’t be popular enough to continue supporting. The sandbox would help mitigate this kind of risk and encourage companies to be more innovative.
“A provincial regulatory sandbox, focusing on the finance and financial technology sector, is a very positive development that will help to support innovation, competition and job formation, while ensuring appropriate consumer protection measures and regulatory safeguards. The supervised environment lowers barriers to entry for new firms while creating controlled parameters to test consumer applications that could increase choice and lower the costs of financial products and services. It also facilitates efficiency, coordination, and information sharing across regulatory agencies.”
“At Neo Financial, we don’t just look at how we can improve on the existing financial infrastructure, we look at what can be built that hasn’t been done before. It’s initiatives like the regulatory sandbox that helps attract companies and talent to Alberta, and allows us to continue to build upon and pave the way for new fintech innovation.”
Alberta’s government would work with participating companies to ensure they take appropriate precautions and provide safe and sound products and services to the province’s consumers.
If the legislative assembly passes this bill, the government will aim to start accepting sandbox applications by July 1. The Government of Alberta will work with participating companies to ensure appropriate consumer protection measures are in place.
Participating in the sandbox
If the Financial Innovation Act passes, each company participating in the sandbox will have to meet the following criteria:
- Physical presence requirement – Applicants would be required to maintain a physical presence in Alberta. For example, they will need to have an office in Alberta or staff living in Alberta.
- Financial services requirement – The sandbox would only be for companies that offer financial products or services.
- Innovation requirement – Applicants would have to adequately explain why each eligible product or service should be considered new and original, or at least how it is a new adaptation or material improvement of another product or service. Applicants would not receive exemptions for products or services that are already 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.
Participants would have up to two years in the sandbox to test their products, with the possibility to extend the period for one further year.
Participating companies may be subject to additional terms, conditions and restrictions, which the government would determine on a case-by-case basis. For example, participating companies may be required to:
- consult a qualified expert or auditor
- limit the number of customers who can purchase the product or service being tested
- have a certain amount of cash or liquid 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 to allow consumers to resolve concerns
- Alberta’s regulatory sandbox would apply to the following legislation and related regulations:
- Loan and Trust Corporations Act
- Credit Union Act
- ATB Financial Act
- Consumer Protection Act
- Financial Consumers Act
- Personal Information Protection Act
- Examples of technologies tested include soft tokens, biometric authentication, application programming interface (API) services, distributed ledger technologies and mobile app enhancements.
- A soft token is a security resource often used for authentication. A common soft token is a personal identification number.
- An API is a software intermediary that allows two applications to communicate with each other.
- A distributed ledger is a database that is shared and synchronized across multiple sites, institutions or geographies. They allow multiple parties to view, update and/or authenticate financial transactions.
- Alberta is committed to supporting the province’s burgeoning financial services sector.
- From 2000 to 2020, Alberta’s real gross domestic product (GDP) in the financial services sector grew at an average annual rate of more than four per cent, outpacing growth in all other provinces and contributing over $14 billion to provincial GDP in 2020.
- Nearly 63,000 Albertans were employed in the financial services sector in 2019.