Crooked Media is hands-down in my top 3 favorite podcasting production companies. “Pod Save America” and “Pod Save the World” are fabulously produced, always stocked full of interesting newsworthy events and a solid list of guests and sponsors. So when Crooked Media’s sponsor-break introduced a FinTech company offering access to all kinds of global currency from an account that can be reached around the world with little to no fees paid for foreign currency exchange – a ‘borderless currency’ – I thought, “sign me up, man” and then (pause), “how do they do that?”
FinTechs are such progressive, blue-sky thinking companies. They see a problem in the Financial Industry (i.e. slow service, antiquated processes, high fees, customer dissatisfaction) and they find opportunity to radically innovate. In this case, who doesn’t want the convenience of accessing their money from around the world while paying almost nothing to access it? Who doesn’t want to avoid getting their credit card blocked while travelling in the French countryside? Who doesn’t want to avoid paying exorbitant banking fees? The unnamed FinTech company is a money services business (MSB) in Canada (not a Bank), which means it does not have some of the consumer protections that the traditional banking industry does (and may be available to FinTechs within banks), and that isn’t obvious to a consumer who is just listening to a popular podcast.
Consumers can hear endorsements by their favorite podcasters or celebrities and assume that means a FinTech (or cryptocurrency) provides the protections of the traditional Banking Industry, which may not be the case.
The CDIC, which insures consumer against losses, generally, in chequing and savings accounts at financial institutions, produced a report about FinTechs operating within and connected to Banks discussing the emerging risks [here]. The CDIC’s conclusions are that they, “will continue to actively monitor the increasing profile of FinTech and any risks to our member institutions that may be associated.”
In June 2021 some amendments came into force under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), requiring registered MSBs to comply with requirements that include establishing a compliance program, meeting risk requirements, Know your Client requirements (verify identity), providing reports and record-keeping requirements. An MSB, “receive[s] payment instructions and act as an intermediary between a payer purchasing or supplying goods or services and a payee supplying goods or services.” Providing goods and services includes virtual currency exchanges and currency transfer services. Canada’s Financial Intelligence and Money Laundering watchdog, FINTRAC, is also able to administer monetary penalties. This particular FinTech is registered with FINTRAC as an MSB because they’re exchanging currency, though the ad leads you to believe they might be a bank.
Additionally, the regulator listed most prominently on the unnamed FinTech company\’s website is the FCA – would consumers know that this stands for the \’Financial Conduct Authority\’ in the UK? To be clear, FCA does not regulate the Canadian Banking Industry, despite our shared love for the Queen. The FCA does regulate non-bank providers like Electronic Money Institutions (EMIs) and other payment service providers. They (the FSCS) also do not insure consumers’ funds, saying, “[t]he FSCS does not cover money held with APIs, EMIs and SPIs.”
Ultimately, despite the slick ads, celebrity endorsements and influencer commentary, consumers have to approach FinTechs with an open but cautious mind. While operating in progressive spaces, some FinTechs lack the added protections afforded by traditional financial institutions leaving a consumer\’s finances vulnerable, especially in cases of corporate insolvency. Consumers should also look for the underlying messages in FinTech websites as it may not be obvious \’what\’ the FinTech is, which organization regulates it (if at all) and why. And FinTechs should approach their advertising with a sense of ethical duty and responsibility – be honest about they are and what they aren’t.
*This blog is not legal advice.