FinTech: The Innovation Agenda and role of government
Opening remarks by John Pecman, Commissioner of Competition
FinTech workshop: Driving competition and innovation in the financial services sector
February 21, 2017
(As prepared for delivery)
Good morning everyone and welcome.
Before I begin, I would like to welcome the honourable Kevin Lynch, Vice Chairman of BMO Financial Group and former Clerk of the Privy Council. He will begin our day with what will surely be a compelling keynote address, and I promise not to delay that much longer.
Welcome also to Dr. Robert Atkinson, President and founder of the Information Technology and Innovation Foundation. Dr. Atkinson is one of North America’s top thinkers on innovation economics and will be our keynote speaker this afternoon.
Those are just two highlights from the broad mix of stakeholders participating today—which include entrepreneurs, banks, regulators, and officials from Canada, the U.S. and the U.K. And, in addition to everyone in the room today, there are more than 100 participants attending by webcast.
I’d like to thank all of you for coming. I’m glad that you could join us as we come together to discuss our common interest: how best to drive competition and innovation in one of the pillars of the Canadian economy—the financial services sector.
Competition and innovation
As the Commissioner of Competition, I have the privilege of leading Canada’s Competition Bureau. Our mandate is to protect and promote competition in the marketplace for the benefit of all consumers and businesses. We tackle that goal with a comprehensive approach that includes law enforcement, outreach and advocacy.
We enforce the Competition Act by cracking down on cartels and abuses of market power, reviewing mergers and ensuring truth in advertising. We also reach out to the business community with guidance and advice to help them comply with the law and play fair in the marketplace. And we engage in a wide range of activities to advocate the benefits of increased competition in regulated sectors of the economy—which is why we have invited you here today.
Because we know that with increased competition comes lower prices, more choices and higher quality products and services. And we know that businesses in competitive markets are driven to innovate. They have a strong incentive to develop new and better products and services to attract and retain customers. They pursue more efficient production techniques and business models. Competition drives innovation, which in turn drives productivity, efficiency and economic growth.
On the other hand, when innovation is unnecessarily stifled—by regulation or otherwise—the result can be a less competitive and less dynamic marketplace. That is why the Bureau is active in providing pro-competitive policy advice to regulators and legislators—particularly those grappling with challenges brought by emerging technologies.
We can look at the transportation and hospitality sectors to see how technological innovation can inject new competitors into a market (like Uber and Airbnb), bringing big benefits for consumers, big opportunities for growth, but also big challenges for regulators.
As policy makers adapt, the Bureau urges them to regulate as narrowly as possible in achieving their goals, such as public safety and consumer protection, so they as leave as much room as possible for competition and innovation to thrive.
The Government of Canada’s Innovation Agenda
This is important because Canada is in a global innovation race, competing with countries around the world for the most talented people, the newest technologies and the fastest-growing companies. That is why the Government of Canada is developing an agenda focussed on driving growth through innovation.
During the Government’s Innovation Agenda consultations, Canadians said the government should focus on three priority areas:
- People: Canada needs more people equipped with the right skills and experience to drive innovation. We need to do a better job preparing Canadians for a rapidly changing digital economy.
- Technologies: This is about taking full advantage of transformative emerging technologies that can elevate the competitiveness of established and new firms, industries, and clusters.
- Companies: Government must do more to help grow the next generation of global companies in Canada, so that they can create more quality jobs that grow our middle class
The Competition Bureau has an important role to play in supporting these priority areas. We are committed to keeping pace with a rapidly changing marketplace, making space for new entrants and emerging technologies, and helping companies compete, innovate and grow. Our study of technology-led innovation in the FinTech sector is one of the ways that we are playing our part.
The FinTech sector
The financial services sector is a vital part of the Canadian economy. In 2014, the sector accounted for approximately 10% of Canada’s gross domestic product. And in 2015, the sector grew at five times the rate of Canada’s overall GDP.
Like many industries, it is evolving quickly in an increasingly digital marketplace. As Dr. Atkinson’s foundation noted in its report this past October, FinTech innovations “are poised to radically improve” how both consumers and businesses manage their money—from transferring funds and making payments, to saving, investing and borrowing. But more importantly, the report also emphasizes that achieving those benefits “will require policymakers to actively support FinTech transformation.”
In May, the Bureau began exploring the competitive impact that innovation is having on the sector, barriers to entry faced by new companies, and whether there is a need for regulatory reform to promote greater competition. Our ultimate goal is to provide guidance for policy makers on how best to nurture an environment that allows Canada’s FinTech companies to innovate, grow and compete globally.
What you’ve told us so far
Since May, we’ve heard from nearly 100 stakeholders across all segments of the financial services sector: banks, FinTech entrepreneurs, consumer and business groups, regulators and international agencies.
The themes that emerged from our consultations have laid the groundwork for our discussions today:
- Regulation is necessary: Regulation promotes important public policy goals—such as safeguarding privacy and combating financial crime. Investors and new entrants share an interest in the certainty that regulation provides, while customers tend to place more trust in regulated businesses.
- However, existing regulations are numerous, complex and fragmented: It can be confusing and difficult for a start-up to navigate through the thicket of potentially applicable federal and provincial regulations.
- Regulations also need to be flexible and technology neutral: Rigid, technology-specific regulations can exclude innovative new business models and all their associated benefits and growth potential.
- There are also non-regulatory barriers: Earning customer trust is a challenge for new FinTech businesses competing with well-established financial institutions.
- Lastly, regulators are paying attention to the changes in the FinTech landscape: A number of regulatory authorities have taken steps to update their regulations to support innovation while continuing to manage associated risks.
We have invited you here today to build on these themes and discuss the way forward. I believe Senior Deputy Governor of the Bank of Canada Carolyn Wilkins, one of our distinguished guests here today, said it best this past June: “Now is the time for financial institutions, new entrants and policy-makers to work together. The opportunity cost of sitting back and waiting for the dust to settle is too great.”
And so, for today’s panel discussions, we have three broad objectives.
First, we aim to understand the drivers for change in the FinTech sector, as well as the barriers to entry, benefits and risks, and the alignment of regulatory responses to industry needs. Mark Ripplinger, President and CEO of Everlink Payment Services, will ask a panel of incumbent and start-up leaders operating in the fields of payments, lending, and advice: From their perspective, what is needed from regulators in order to foster innovation and competition in the Canadian financial services sector?
Second, we aim to identify any gaps that currently exist in Canada’s public policy framework for FinTech services. Carolyn Wilkins will ask a panel of Canadian regulators about what kind of response is needed in the face of the changing financial sector.
And finally, we will learn about international best practices and how they may―or may not―apply to Canada. We will ask a panel of international experts what the key lessons are for us, based on their own experiences. Special thanks to Sean Rodriguez and Colin Garland who have travelled from the U.S. and the U.K. respectively to share the experience of the U.S. Federal Reserve System and the U.K. Competition and Markets Authority.
Overall, today’s workshop is intended to support an exchange of ideas and build on our learned experiences. This is an opportunity for you to share your perspective and, in doing so, shape the future of competition and innovation in Canada. I encourage you to engage with our speakers and panelists as the day goes on, to ask questions and challenge assumptions. You can also join the discussion through social media using the workshop hashtag “FinTechCan”.
The results of these discussions will feed into the Bureau’s market study and will inform our final recommendations on driving competition and innovation in the financial services sector.
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