The British Columbia Securities Commission (BCSC) published BC Notice 2018/01 – Consulting on the Securities Law Framework for Fintech Regulation on February 14, 2018. The Notice follows from a series of consultations (both in person and by survey) conducted by the BCSC on various elements of the financial technology (fintech) industry. The Notice sets out the results of the consultations, the general approach to date of the BCSC on certain of the matters and poses specific questions for comment on potential regulatory action to clarify or modernize securities laws in the space. Written submissions are due on April 3, 2018.
The Notice discussed the following topics, among others:
- crowdfunding and online lending business models
- online adviser business model
- cryptocurrency funds
- initial coin offerings (ICOs) and cryptocurrencies.
The BCSC posed a series of questions in the Notice to solicit feedback including with respect to the following matters:
- possible alternatives to limitations of current crowdfunding rules
- the use and oversight by registrants of third parties or artificial intelligence to either provide Know-your-client (KYC) information or conduct certain KYC and/or suitability responsibilities.
- what kinds of outsourcing arrangements exist or are being contemplated by online advisers and independent portfolio managers
- what regulatory or administrative requirements can result in an inefficient flow of capital when investors switch accounts or transfer assets between firms (e.g. the requirement for a wet signature) and what are better alternatives
- how are cryptocurrency exchanges working to address arbitrage, security of funds and tokens and anti-money laundering
- best practices followed by cryptocurrency wallets and custodians to address cybersecurity and antimony laundering concerns
- best practices of investment fund managers to address concerns of pricing volatility, fair valuation, transparency, liquidity and anti-money laundering when trading cryptocurrencies
- the challenges of custodial requirements in the cryptocurrency space
- should different proficiency and operational requirements apply to registrants advising or managing cryptocurrency funds as compared to registrants advising or managing other funds
- what variables or factors should be relevant when assessing whether an investment contract exists within an ICO
- what factors should be considered and are there conceptual distinctions between a virtual currency and other coins or tokens that securities regulators should consider in assessing whether a security exists
- whether there are any specific securities regulatory requirements that stifle innovation without an adequate rationale or are there other suggestions for modernizing the regulatory framework for fintech.
Once the BCSC has considered the feedback it receives, it will determine the appropriate regulatory action.