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Fintechs that lend to businesses, on the other hand, often face onerous regulations similar to those faced by their traditional brick-and-mortar counterparts. That leads to an unlevel playing field, where these small but innovative firms have to adhere to regulations meant for systemically important financial institutions. To alleviate these concerns without sacrificing safety and stability, regulations should be more function-based and less entity-based, i.e., they should be more about what you do rather than who you are. At the same time, however, they should also be proportional to the risks created by the particular function a firm is performing. For example, though certain exemptions exist, peer-to-peer lenders, like traditional lenders, have to file a prospectus for each loan that involves selling securities to investors. In this case, the functions are the same but the cost could be prohibitive to less risky startups, damaging the potential for increased competition in this market.

More broadly, Canada’s regulatory and policy framework also impacts our overall productivity through the environment it creates for attracting capital and encouraging its efficient allocation.

One way of measuring Canada’s attractiveness to capital is to look at how we compare with other countries in net foreign direct investment inflows. Unfortunately, at the moment we rank behind Australia, to which we are often compared, as well as such global leaders as the Netherlands, the U.S., and despite Brexit, the U.K. Many factors go into foreign direct investment decisions, including regulatory structure. As it is, businesses with money to invest in Canada confront multiple hurdles, including different federal and provincial regulators. Adopting international best practices in financial services regulation can be complicated in Canada because of constitutional divisions of authority but more could be done to reduce fragmentation across function and geography.