Why Fintech Entrepreneurs Should Make Friends with Regulations

Want to change the world with your fintech startup? You have to work within the world you have, says MaRS‘s Adam Nanjee.

Why Regulation Looms So Large in Fintech

Most software startups can launch, learn and fix things as they go. Fintech is different. The moment a product holds people’s money, moves payments, lends, or gives investment advice, it steps into one of the most heavily regulated parts of the economy.

That’s not an accident. Financial rules exist because mistakes with money spread quickly, from one customer to many and from one firm to the wider system. For a founder, that means the regulatory question isn’t a box to tick after launch. It shapes what the product can be in the first place.

Regulations are not designed to obstruct you or keep the status quo. They protect the economy from harm.

There’s no carte blanche for a good idea. Following the rules must be part of the DNA of a fintech startup.

Regulators Are Willing to Talk

The good thing is, regulators are open to discussion. Adam Nanjee’s fintech hub at MaRS helps make initial connections.

After all, regulators understand that rules that can’t be adapted and applied also can’t respond to change.

The right time for entrepreneurs to get regulators involved is before they start.

Scaling Means Working With Banks and Thinking Global

In Canada, especially, to achieve any sort of scale, you also must work with banks and think beyond your borders.

Each environment has different rules on reporting, retention of customer data, and risk.

Fintechs that proceed past the idea stage have to then budget time and money around regulation.

Although the consequences of not working with regulators might be catastrophic…

…without them…

What Happened Next: Canada Opened a Front Door for Fintechs

Nanjee’s point about regulators being open to discussion was borne out almost immediately. Four days after this article ran, on October 24, 2016, the Ontario Securities Commission unveiled OSC LaunchPad, which it described as the first dedicated team at a Canadian securities regulator set up to help fintech businesses with securities law.

The idea was to give new and early-stage fintechs direct support: meetings to explain the rules, early informal guidance, and in some cases flexibility on existing obligations. Where it made sense, the OSC said it would consider time-limited registration or exemptive relief so innovators could test their products. LaunchPad started as a pilot and is still running today.

Regulators across the country followed. On February 23, 2017, the Canadian Securities Administrators launched a national regulatory sandbox, a faster and more flexible route for innovative businesses to register or get exemptive relief so they could operate across Canada. Firms start with their local regulator, which for Ontario companies means going through LaunchPad.

The next big step came on the banking side. The federal government’s Budget 2024 laid out a framework for “consumer-driven banking”, Canada’s version of open banking, which lets customers share their financial data securely with other providers. The first part of it became law on June 20, 2024, when the Consumer-Driven Banking Act received royal assent as part of that year’s budget bill. The framework puts the Financial Consumer Agency of Canada in charge of oversight, with a new senior deputy commissioner role dedicated to consumer-driven banking. According to a summary by law firm Blakes, the products it’s meant to cover include deposit accounts, investment accounts, payment products such as credit cards, lines of credit and mortgages.

For fintechs, it’s another example of what Nanjee was describing: regulation that adapts to new technology instead of simply blocking it.

What It Means for Founders

The lesson from 2016 still holds. Find out which rules apply to your product before you’ve spent your seed round building it. Talk to the regulator early, because the support programs exist precisely so you don’t hit the wall Nanjee warned about.

It’s also worth knowing which regulator you actually answer to. Securities rules, banking rules and consumer protection rules are often handled by different bodies, and at different levels of government, so a product that touches more than one area may need more than one conversation.

Budget for compliance as a real cost, not an afterthought, and expect that cost to grow as you scale and enter new markets. And treat banks and regulators as part of your route to market. In Canadian fintech, the startups that last tend to be the ones that worked with the system rather than around it.