Is red tape holding back the financial tech industry in Canada?

The Bank of Canada is experimentingwith "regulatory sandboxes"to promote innovation, says its seniordeputy governor Carolyn Wilkins. Butventure capitalist Ray Sharma says that regulation is holding Canada's financial technology industry back.

Still, he says, we have the potential to be a major player.

In 2008, when the financial crisis was spreading from country to country, one of the things that helped protect Canada was our regulatory system.

And while that regulation can provide some safety,it can also be restrictiveespecially in the case in the high-tech industry, where innovation is a goal in itself.

One proposed idea is a middle ground between a rigid regulation and a total free-for-all: a regulatory sandbox.

"Many central banks and other authorities have put together a regulatory sandbox, which allows financial institutions or innovators to test out their ideas,"Wilkins, whooversees the Bank's strategic planning and operations, told CBC's Spark.

Spark19:14Playing in an innovation sandbox

Two sides of the FinTech coin

The central bank iscurrently is running afinancial technology,or fintech,experiment called "Project Jasper,"which allows banks to pay each other using Blockchain, the distributed-ledger technology that underlies Bitcoin.

"We are clearly on the cusp of a defining moment when it comes to fintech, just because of the scope with which financial innovation is occurring," Wilkinssaid.

"We think there's a role for the official sector to play in the development of this technology. Not to get in the way of this technology, but to make clear what the kinds of expectations and parameters might be there as these systems become more and more important, so that the innovators can just build them in right from the get-go."

Spark8:03Carolyn Wilkins on financial technology regulation

Deputy Governor of the Bank of Canada, Carolyn Wilkins, on regulating the financial technology industry.

One of those innovators is Sharma, oneof Canada's most influential venture capitalists. His investments include a fintech startup called Crowd Matrix.

"It's actually regulation that is holding back a lot of this innovation,"Sharma said.

While centreslike London, England, have vibrant financial technology industries, Sharma saysCanada, and especially Toronto, is well behind what it could be.

"We have, in the Greater Toronto Area, these academic institutions that are unique. We have an unbelievable talent base. We have the Toronto Bay Street community. The combination of all those things means that Toronto should be able to come back relatively quickly and be in a position of strength."

While regulation has helped shield Canada from dangers in the past, Ray says if this countrycontinues to lag behind in fintech, it could affect our economy overall.

"We're in a unique period oftime in human history when it comes to innovation. The quid pro quo of being behind in financial services is that I think it will affect our fundamental productivity," he said.

"It's amazing that the financial institutions have allowed the innovation to take this long to really take effect on them."

Spark11:12Ray Sharma on innovation in Canadian fintech

Venture Capitalist Ray Sharma on the potential of Canada's financial technology industry, and why rigid regulations are holding it back.