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Digitalization of Money in Canada

Regulatory strategies for more competitive and responsive innovation

Innovation in payments technologies, digital currencies, and financial services have the potential to improve consumer choice, enable the growth of new firms, and enhance productivity and growth in the broader economy, but they also pose risks to consumer well-being, financial system integrity and stability, cyber-security, and the ability of democratic governments to guide economic activity for social benefit.

While innovations and risks are emerging at a rapid pace, Canada’s regulatory framework for financial innovation and the digitalization of money remains an uncoordinated patchwork of measures that hamper innovation, growth, and effective risk management.

A regulatory regime for the digitalization of money in Canada should:

  • focus on regulation for responsible innovation, whereby policymakers and relevant regulatory agencies aim to create conditions not merely for risk management, but to enable innovation that can benefit consumers, businesses and the economy as a whole while being mindful of risks and how to manage them.

  • adopt a more integrated, systems-wide approach in which key agencies work together with the assistance of a Digital Money Regulation Coordinator and small staff who will monitor, assess, and make recommendations about the need for cross-agency coordination on financial innovation and digital assets.

  • ensure that different types of digital financial assets and actors receive different regulatory treatment consistent with their varying risk/benefit profiles, rather than treating all digital assets, financial technologies, different sized firms, and domestic and foreign-owned firms the same.

  • create a Financial Innovation and Regulation Council whose responsibilities include gathering, analyzing, and reporting on new developments in financial innovation that could have implications for Canada; monitoring and regularly reporting on the effectiveness of regulatory measures to manage risks and enable responsible innovation; and serving as a convenor of relevant stakeholders (e.g., firms, consumer groups, regulatory bodies) to discuss regulatory responses to innovations and risks.

Canada has an opportunity to be a leader in responsible financial innovation, but it will require a more balanced, nimble and integrated regulatory approach.

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