The federal government is looking for ways to help blockchain startups jumpstart a slowing economy and make Canada a global mecca for the fledgling technology. Canada is already ranked third in the world behind the United States and the United Kingdom in its number of blockchain startups.
In recognition of the potential economic benefits of promoting blockchain and other innovative technologies, the Canadian Security Administrators (CSA) have launched a “Regulatory Sandbox Initiative” to mentor and work with new startups in a relatively regulation-free environment. The CSA is an umbrella organization for all the provincial and territorial securities regulatory agencies across the country.
“The CSA’s initiative is a clear answer to the increasing number of businesses interested in using innovative products, services and applications all across Canada,” Sylvain Théberge, a representative from the CSA, told Bitcoin Magazine. “We want to encourage all eligible startups to contact their local securities regulator, which will consider its eligibility and refer it to the CSA regulatory sandbox if it provides genuine technological innovation to contribute to the local and national economy.”
“This type of sandbox program is exactly what blockchain and digital currency companies need,” Kyle Kemper, executive director of the advocacy group Blockchain Association of Canada, told Bitcoin Magazine. “The importance of this should not be understated. The regulators understand that they need to work with innovators to understand the technology, the implications, the threats and, more importantly, the opportunities.”
He noted that compliance regimes and standards are struggling to keep up with the volume of data, which makes it difficult for all parties to operate effectively. “The sandbox approach is a great way for the regulators to support innovators while also becoming innovators themselves.”
The CSA has already received applications from startups that don’t mind working with the government to get the regulatory environment right without tying their hands in a competitive international market.
Joseph Weinberg, co-founder and CEO of Paycase and a Blockchain Association of Canada board member, told Bitcoin Magazine:
“This partnership for us is incredibly important. As financial services companies, we face the realities of having to navigate this financial terrain that is largely based on traditional systems that operate in fundamentally different ways. Our ecosystem has had many challenges, from getting bank accounts to proper payment processing and more.”
“Any blockchain company that is working on projects that involve KYC, AML and securities compliance should be interested,” added Kemper. “These could include exchanges, brokers, payment solutions, new blockchains, remittance firms, companies looking to ICO, identity solution providers, MSBs, reg tech providers, to name a few.”
According to Lise Estelle Brault, CSA senior director of Derivatives Oversight, it is important to establish common standards across the country and to protect investors:
“Regulators have a key role to play in providing legal certainty around the implementation of any new market practices, some of which may cross jurisdictional borders. In the future, regulators could be tasked with ensuring the soundness of the governance built into code and turning the increased transparency into tangible intelligence on market stability.”
Brault acknowledged the challenge facing the CSA, which needs the IT infrastructure, appropriately trained staff and the “organizational agility” to successfully work in a rapidly changing technology market.
The Regulatory Sandbox Initiative is also open to other new innovative technologies including artificial intelligence and online crowdfunding portals.
Ontario Securities Commission’s LaunchPad
The Ontario Securities Commission (OSC) was the first provincial agency to create a “safe space” for blockchain startups with its OSC LaunchPad program. It has already met with interested startups to strategize ways to test the marketplace without the usual rules and regulations.
Weinberg, whose company, Paycase, is a participant in LaunchPad, observed that it is important to keep discussions with the government as a two-way street, educating and fact-checking to ensure that regulators and government organizations have the best information and the right technology solutions.
The OSC LaunchPad program recently signed an agreement with the U.K.’s Financial Conduct Authority (FCA), allowing both agencies to refer startups to each other and help new firms navigate in each other’s regulatory regimes.
“The CSA Regulatory Sandbox is a great example of collaboration among securities regulators to provide a harmonized approach to fintech businesses across Canada," said Pat Chaukos, chief of the OSC LaunchPad. "The OSC LaunchPad team will work with our CSA colleagues to share our experiences and expertise to react to the unique needs of these innovative business models.”
Weinberg said that he appreciates the efforts of the Canadian government to ensure new innovative technologies are not hamstrung by outdated regulations.
“Through initiatives being taken by the blockchain community in Canada, in collaboration with all levels of government, regulators and financial institutions, we have created an environment that is based on collaboration instead of competition, and cooperation instead of collision,” he noted. “Our companies, alliances and bodies of government are paving the way to rapid transformation across all systems of our economy.
“The more we can help our regulators and government bodies understand how they (blockchain, cryptocurrencies) work, the faster we can build a more prosperous economy in Canada and create more Canadian companies that compete at the global level.”