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New Financial Technology – Bringing Both Risks and Benefits

08/03/2017


​Financial technology (fintech) is an emerging industry racing from the gates of innovation to compete with traditional financial service providers. These new technologies, such as Bitcoin and crowdsourcing, offer attractive services largely to millennials disenchanted with current options provided by banks and credit unions.

Like many agents of change, fintech has created some anxiety in the regulatory and banking worlds because it is innovative, at times complicated and largely misunderstood by the very people who could support and champion the industry for the benefit of customers. As well, concerns over fintech’s ability to possibly help criminals or terrorists move money anonymously have financial institutions hesitating or outright refusing service to these new offerings.

While the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) supports the global Financial Action Task Force stance on the correct application of risk-based approach, FINTRAC Director Gerald Cossette’s statement “crowdfunding and virtual currencies like Bitcoin have been used to finance terrorist activities and to launder money” might put banks and the banking regulators on edge and discourage them from providing services to fintech companies.

Yet Cossette’s statement, while true, could also be said about banks and the traditional banking services they offer. In fact, it could be said of any reporting entity sector. The $1.15 million fine levied last year against Manulife Bank of Canada for failing to report hundreds of transactions covered under anti-money laundering regulations springs to mind.

Perhaps it is time for the banks to get off their high horse with regards to their position as de-facto regulators and admit most money laundering happens through their established products and services. Perhaps a world of technology with digital foot and fingerprints is the future we need to stop the very activity that is being cautioned against.

The federal Department of Finance and FINTRAC, through their Risk Based Approach guidance, recently imposed additional considerations to be assessed around new technologies. Businesses, especially fintechs, must consider the inherent risks of the products and services they offer and the clients using these products and services. As the so-called good guys are always learning from the “bad guys,” it is reasonable to assume that while some have used these innovative technologies for illicit and nefarious activities, these may very well be the case studies to implement checks and balances to mitigate these risks and offer well thought out financial solutions for a new generation of sophisticated financial product users.

We need to listen to the logical voice, also from FINTRAC, that says that “public oversight should avoid slowing progress in a fast-growing area that brings many benefits.” New technologies can be challenging, but also bring value –to clients and the institutions that adapt and adopt them.

To find out more, contact Hayley Howe at 604.685.8408 or [email protected].