Christine Duhaime: Fintech meets law
Christine Duhaime founded the Digital Finance Institute, a think tank for financial technology, law and policy, and is one of Canada’s most visible lawyers specializing in financial crime and anti-money laundering. CBA National Senior Editor Yves Faguy caught up with Duhaime to discuss the issues emerging at the intersection of law, fintech and digital currencies.
CBA National: What’s most interesting to you about fintech and law right now?
Christine Duhaime: For one, there’s the “blockchain,” which is this really interesting distributed ledger system where transactions don’t go through a middleman – or a financial institution, or a central bank – but where you’re tracking the transaction online. So we can actually track the transaction, see it, know who the parties are, and cover the anti-money laundering compliance side of it. So eventually, you wouldn’t really need FINTRAC (Canada’s financial intelligence unit), if you think about it, because if we move towards a digital currency and a blockchain, every single transaction of every single person is going to be online.
N: How are the financial services and legal industries going to change as a result?
CD: Artificial intelligence is going to change a lot of it. I think about Bay Street, with its towers full of lawyers and compliance people supporting them. With banking that is mobile, and artificial intelligence playing a huge role as transactions are done with the blockchain, we’re going to need techies – not compliance people or lawyers.
N: Is the law profession ready for that?
CD: I don’t see the law societies having the discussions they should have been having two years ago about how this is going to affect lawyers. For example, how do we protect the practice of law? How do we protect the public?
N: Do law firms lack the resources they need to invest in tech?
CD: Law firms don’t actually want to invest in tech, so the accounting firms are doing it. That’s the issue. Either the law firms decide they want become the law tech providers, or we’re going to be eaten for lunch by somebody else.
N: How long before the blockchain and smart contracts completely transform the practice of law?
CD: There’s so much hype that smart contracts and the blockchain-related tech are going to change the practice of law – and that’s true. But it’s not going to be able to be done without some sort of legal input. For example, we haven’t changed our laws that require notarising. Soon enough, the lawyers are going to have to meet the techies, and the venture firms are going to have to realize that they’re funding this stuff, and talk to the lawyers and the law societies about what the legal profession requires and how the two can be integrated.
N: What are you advising clients right now?
CD: I have a number of fintech clients who, to be honest with you, look at the law and often figure that because they’re new, the law doesn’t apply to them. And they don’t really want the law to apply to them. They think it’s okay to just innovate. My concern right now is making sure that fintechs understand that there’s almost no such thing as being able to operate in a legal vacuum. So just because marketplace lending is new, it doesn’t mean there aren’t laws that apply to lending, to consumer protection, privacy and data collection and sharing.
N: Which countries are taking the right regulatory approach?
CD: UK and Singapore. That’s because they have created regulatory sandboxes, which means the little fintechs can start to create the tech they need without worrying about the law. There, you can innovate and you’re protected from the regulatory oversight, the regulatory licensing and the huge amount of money it costs to be compliant. You get a break from the law so you can innovate, talk to banks and get financing. Australia is now introducing the same thing, and the U.S. is thinking about it as well. But there’s no talk of that in Canada whatsoever, unfortunately.