Innovation framework public consultation summary

Several stakeholders stressed that the intake questionnaire should be strictly about capturing information that is critical to proceeding to the next step and not about developing an extensive database of non-critical information. The request for information should not be overly onerous and should be guided by avoiding risks to consumers, not simply managing risks to the regulator itself.

FSRA acknowledges that innovators can be concerned about disclosing proprietary information to other parties, regulators included, given freedom of information legislation requirements. The intake questionnaire, either in the form of a TLE application or a novel inquiry, frontloads the capturing of critical information so FSRA can better understand the innovation opportunity being proposed by the innovator, internally source the most relevant expertise for analysing the innovation opportunity, and better prepare for the next step of engagement with the innovator.

FSRA has no intent to develop an extensive database of proposed innovation opportunities for further analytics given the highly sporadic nature of such proposals and challenges in processing non-structured data. Strictly from the case management perspective, however, all proposals will be stored and retained following FSRA’s records retention policy.

Stakeholders generally wanted clarification around how developed an innovation opportunity must be before the innovator brings it to FSRA: can it be a ‘blue sky’ idea, or must it be a detailed proposal?

FSRA recognizes that innovators’ proposed innovation opportunities are very likely to be in their early stages and hence would not necessarily have detailed, finalized proposals ready for immediate review.
However, the existence of a bona fide, ready-to-test business case will be the critical criterion distinguishing innovation opportunities for potential validation through TLEs from hypothetical reference questions that could be treated as novel inquiries to pre-emptively provide regulatory clarity. 

While we are committed to in-depth collaboration with innovators, FSRA is not in the business of innovation incubation and acceleration. Regardless of point of entry, innovators are expected to a) have done a preliminary review of the challenges that are deemed to be rooted in regulatory requirements, and b) demonstrate why and how the proposed innovation opportunity, should it be allowed, would benefit consumers.

Some stakeholders recommended that FSRA share the full set of criteria that will be used to assess opportunities in the spirit of transparency and to ensure that innovation opportunities FSRA takes on are substantive and aligned with the overall goal of responsible innovation.

Some stakeholders also inquired into the capacity of FSRA to handle intake quickly and efficiently, noting the importance of the intake process being streamlined and simple to there being engagement from industry. In this vein, some stakeholders asked for further clarification on how many projects FSRA could handle simultaneously and whether additional staff will be brought onboard to execute on these innovation opportunities.

FSRA has benchmarked cross-jurisdictional practices and sought input from relevant international organizations, and intends to balance the thoroughness in examinations and reasonable expectations from innovators on timely decision or clarity regarding the next steps.

Stakeholders were concerned that an innovator’s ‘point of entry’ when bringing an innovation opportunity to FSRA could unduly influence how that innovation opportunity is processed and assessed.

FSRA would like to clarify that the Innovation Framework will be applied to all innovation opportunities regardless of point of entry, not just innovation opportunities brought directly to the Innovation Office. In all cases, the Innovation Office will work closely with implicated core regulatory teams to gain their contextual understanding of the innovation opportunity and to draw on their subject matter expertise.

Innovators should see the Innovation Office’s role as that of an orchestrator that coordinates FSRA’s innovation ambition in collaboration with teams from across FSRA.

Stakeholders sought clarification around how the Innovation Office plans to handle similar proposals by different innovators. Specifically, stakeholders wanted to know whether multiple innovators could be approved to trial similar innovative ideas and whether innovators testing their ideas in the TLEs would be able to maintain a competitive advantage for a set period of time prior to others being able to implement a similar idea.

Innovation opportunities proposed to FSRA for contemplation are likely to have components that are deemed incompatible with the current regulatory framework. If an innovative practice is not in any way constrained, the innovator can proceed themselves without having to seek approval from the regulator. By participating in the TLE, the participant is enjoying a competitive advantage already as non-participants still must operate within the regular framework.

No two applications or tests by different innovators would be identical and therefore would not be merged unless the innovators themselves decide to ally and specifically ask FSRA to merge their applications.

If competing innovators submit similar applications based on the publicly-available information FSRA releases in the course of another innovator’s ongoing or past TLE test, FSRA would still need to validate the unique set of risks, merits, and uncertainties based on the application and the applicants. Lessons learned in previous testing may be applied and certain expediencies may result, but until sector-wide changes can be implemented – usually through government action – the approvals flowing from successful TLE test outcomes would be entity-specific.

Some stakeholders expressed the view that Ontario’s regulatory environment is currently fairly restrictive compared to some leading innovation-friendly jurisdictions. Due to these perceived constraints, it was predicted that innovators will likely ‘play where they can’ and pursue relatively modest innovations via the TLEs until FSRA has demonstrated the capacity to facilitate bold, transformative innovation opportunities. According to stakeholders, initial innovation opportunities are likely to be clustered in the areas of new pricing models, expanded product offerings, and digital connectivity and distribution.

Stakeholders seem to agree with FSRA’s assessment that our role is to facilitate a pro-innovation regulatory environment, not to direct the course of financial services innovation itself. To this end, stakeholders were also in agreement with FSRA that our regulatory approach must ensure that marketplace stability is prioritized at least as strongly as innovation disruption, facilitating innovation but not losing sight of FSRA’s role as a public interest regulator. This aligns strongly with the Innovation Framework’s commitment to responsible innovation.

Some stakeholders outlined the distinction between access to product and access to advice with regard to innovation and the deployment of digital tools. While some consumers would be satisfied simply with improved access to new financial services and products, most consumers see access to advice as a critical part of the consumer experience when interacting with financial services and products. With this in mind, stakeholders encouraged FSRA to prioritize innovations that improve the consumer experience as a whole, including the advisory process.

Stakeholders stressed that if FSRA intends to facilitate innovation rather than be a barrier to it, FSRA must ensure that innovators bringing innovation opportunities to FSRA receive timely and complete responses from FSRA as to expectations and next steps. This also needs to take place without excessive reporting and administrative hurdles, with information and elaboration requested by FSRA being directly relevant to actioning the innovation opportunity.

The Innovation Framework should also recognize common innovation principles like ‘failing fast’, ‘minimum viable products’, and ‘skateboards’. While stakeholders are cognizant of FSRA’s role as a regulator and do not expect FSRA to abandon needed safeguards and risk management processes, they have highlighted that innovation implies a level of uncertainty that FSRA will have to adapt to and account for.

Stakeholders highlighted that with the initial scope of the TLE being confined to the auto insurance sector, FSRA should bear in mind that insurers are experts at appraising risk and should feel comfortable relying on insurance innovators to define and manage risk from innovation opportunities they might pursue through the TLEs.

Insurance innovators could help establish risk metrics to measure outcomes and set success criteria, with FSRA able to leverage these metrics in the process of defining what a successful TLE test would look like. These metrics would be accompanied by mitigation plans to address identified risks, with issues like data privacy and transparency around the use of data being proactively assessed and accounted for.

It was also suggested that risks flowing from TLE testing can be mitigated by carefully defining and tailoring the scope of the project. This could mean that testing begin with a pilot, followed by assessment of the customer base and containing the scope of functionality. Timing of the launch of a TLE project could also factor into managing risks flowing from testing.

It was raised that risk identification, control, and mitigation is already embedded in much of the regulatory processes that innovators are subject to. With this in mind, stakeholders flagged that FSRA should understand and take into account the approaches to risk used by financial services regulators with potentially overlapping jurisdiction, OSFI and the OSC in particular.

Stakeholders noted that poor management of interprovincial regulatory harmonization can be a significant barrier to innovation, with many innovators preferring to deploy their innovations in a larger, more coordinated market rather than navigating the relatively smaller, often fragmented Canadian financial services sectors. Stakeholders encouraged FSRA to scope out existing work underway in other provinces or at the federal level, take a leading role in coordinating with other provinces and the federal government to develop a common national innovation framework for financial services, and commit to working collaboratively with each other in assessing fintech solutions to reduce duplication and facilitate the timely delivery of innovative services across provincial borders and across sectors.

Stakeholders also noted that many technology risks present in the financial services sectors are not specific to these sectors: areas like cybersecurity have seen the development of global standards and frameworks created by large, expert organizations with international scope and insight. Allowing these standards to be incorporated into FSRA’s innovation risk management framework would align with global best practices and encourage broader interest from innovators from across the globe.

FSRA notes that it has taken both the adoption of cross-jurisdictional practices and the adoption of global financial services innovation through cross-jurisdictional regulatory harmonization and collaboration into account during the design of the TLEs. The Status TLE in particular paves the way for non-conventional new entrants to Ontario to enjoy a level playing field with incumbents. FSRA TLEs will be integrated with the Global Financial Innovation Network’s Cross-Border Testing initiative and will be a key model for CCIR/CISRO’s Canada-wide insurance and insurance intermediary regulatory sandbox initiative.

TLEs will allow for FSRA to assess the consumer impacts from innovation before working with the government on a regulatory response. Stakeholders are enthusiastic that if FSRA successfully works with the government to adapt for a more innovation-friendly regulatory approach following successful TLE testing outcomes, it will establish the TLEs as a thriving venue to develop new innovations while protecting the best interests of consumers.

Stakeholders are excited about the potential for TLEs to provide opportunities for start-up firms to collaborate with traditional financial institutions and allow open participation from all firms regardless of age, size or partnership. However, they also flagged the potential for existing competition laws to make collaborative innovation by multiple innovators within the TLE more difficult than expected. With this in mind, stakeholders encouraged FSRA to ensure that the TLE operates with specific attention to competition law.

Many stakeholders expressed a desire for the scope of FSRA TLEs to be expanded and for FSRA to be granted broader exemptive authority to support innovation across Ontario’s financial services sectors. While the initial scope of FSRA’s TLEs is seen by stakeholders as a good start, they have also expressed concern that there are still too many constraints around the potential for innovation and would like to see the TLEs applied across sectors with broad exemptive authority.

Stakeholders stated a desire to know how success of a TLE will translate into long-term, permanent regulatory changes. TLE testing could entail significant investment of resources and time by innovators, so uncertainty about whether permanent changes will be implemented and the timeline for implementation could present an undesirable risk and a roadblock for innovators, especially if the innovation undergoing testing might be forced to ‘go dormant’ if there is a gap between the end of its exemption period and the implementation of new regulations.

Stakeholders flagged that there must be a balance between FSRA’s proper commitment to transparency in the testing process and protecting the innovator’s proprietary information. Securing a first-mover advantage would be a significant motivator for prospective TLE applicants.

If this balance is not properly struck, stakeholders noted that a TLE participant’s competitors could start developing their own similar product or service while the participant with the innovation in the TLE remains tied up in a testing phase. With this in mind, stakeholders encouraged FSRA to be judicious about the information it publishes on TLE testing applications and their outcomes.

FSRA understands this concern. We will ensure that information published in the course of TLE testing is confined to the information necessary to both (i) protect the public during the course of processing an innovation opportunity, and (ii) maintain a level playing field transparency around where FSRA has used its regulatory tools such as exemptive relief and discretion during the course of processing an innovation opportunity.

Subject to these two conditions, FSRA is otherwise committed to maintaining the confidentiality of all proprietary information and intellectual property shared with us by innovators in the course of actioning an innovation opportunity.

Stakeholders stressed the importance of setting a realistic standard for success of an innovation. With new products or services, it is likely that most consumers will be happy with their decision to use the product or service. However, some may not be. In a competitive auto insurance market, these consumers have the ability to shop around for a product that they are satisfied with. Stakeholders noted that FSRA should not interpret the existence of a small number of unsatisfied consumers who used an innovative auto insurance product as a sign that the innovative product is unsuccessful or harmful.

FSRA generally agrees with this consideration and would like to reiterate that the TLEs will develop mutually agreed-upon Testing Plans for each test process that leverage data-driven, evidence-based approaches. FSRA is also committed to engaging in transparent dialogues with test participants when anomalies are detected to ensure that the innovation opportunity being tested isn’t assessed through subjective anecdotal impressions.

The objective of these TLEs is not to be a simple pass/fail decision-making vehicle, but rather to be an environment where FSRA and innovators work towards a common goal of responsible innovation through timely adjustment of both the innovation opportunity being tested and the regulatory response to the testing of these opportunities.

Finally, stakeholders outlined that it can take a significant investment and time for an organization to evaluate consumers’ interest, operational impacts and the ultimate commercial viability of an innovation. Wrapping up a TLE testing process requires careful communications and a transition plan, so stakeholders would like to know that there are appropriate off-ramps built into the process.

Several stakeholders expressed the view that while the exemptive powers currently granted to FSRA’s CEO can be leveraged to facilitate innovation in the financial services sectors and the TLEs will support this goal, these exemptive powers should be expanded with a view to making FSRA’s innovation ambition more ambitious and transformative. For instance, some auto insurance stakeholders encouraged the broadening of these powers to include potential changes to the mandatory auto product and the current regulations and rules around rate setting.

Stakeholders also expressed some concern that FSRA’s innovation ambition could be constrained by less malleable legislative requirements. While noting that FSRA management has generally been receptive to innovative ideas and approaches, they historically have not had the power to action them, or their capacity to action them has been slowed down to an unworkable degree due to approval processes that are incompatible with the necessary pace of innovation.

Conversely, stakeholders also noted that the pro-innovation intentions of FSRA’s management must be backed up by frontline execution. Some stakeholders perceive the frontline application of FSRA’s regulatory approach as ‘black and white’ with an aversion to change. This does not align with FSRA’s adherence to a principles-based regulatory approach and will require transformation if FSRA’s innovation ambition is to be properly supported.

FSRA understands stakeholder comments on broadening FSRA's exemptive authorities and discretionary powers for the purpose of enabling innovation more effectively. FSRA reiterates that it is not in the business of dictating what innovation should look like in the sectors it regulates and may only exercise exemptive authority within the parameters defined by legislation. However, FSRA will continue to proactively research and engage on areas for possible future innovation and will be ready to support innovation to the extent possible as defined by legislation. Ultimately, innovators will remain responsible for driving innovation in Ontario’s financial services sectors with support from FSRA in ensuring an innovation-friendly financial services ecosystem.

Stakeholders flagged that there are several industry committees and councils focused on driving innovation and technological adoption in the financial services sectors that FSRA would benefit from engaging with. FSRA is always open to engaging with our stakeholders to pursue common objectives. We encourage industry committees and councils who see alignment between FSRA’s innovation ambitions and their own to pursue collaboration with FSRA’s Innovation Office, which can be contacted at [email protected].

Stakeholders also encouraged FSRA to host informal presentations and roundtables to socialize new concepts and approaches and engage the sector in a direct, accessible manner. For the Innovation Framework, this could mean continuing informal and ongoing discussions with stakeholders to answer any questions that may arise in the impending deployment of the Innovation Framework. FSRA agrees with this: the Innovation Office has an ‘open door’ policy with stakeholders who want to learn more about FSRA’s innovation ambitions and encourages dialogue on these issues.

Stakeholders noted the benefits of plain language communication in both formal and informal discussions and consultations, allowing for frank and accessible discussion around often highly-complex topics. FSRA agrees with this assessment of the benefits of plain language communication and will strive to make our communications with our stakeholders as accessible as possible.