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FSRA Releases Final Innovation Framework, and Opens Testing Environment to Auto Insurance Innovations

FSRA Releases Final Innovation Framework, and Opens Testing Environment to Auto Insurance Innovations

On January 24, 2022, the Financial Services Regulatory Authority of Ontario (“FSRA”) released their Final Innovation Framework (“Framework”) and proposed Test and Learn Environment (“TLE”) GuidanceAfter the creation in 2020 of the Innovation Office and the positive feedback from the Innovation Framework consultation, the Innovation Office was established.

FSRA also announced that auto insurance is now open for testing in the first environment.

The Framework outlines FSRA’s approach to working with regulated and non-regulated entities in the pursuit of sustainable innovative opportunities as a way to bolster the responsivity of the financial services to support the creation of accessible, affordable, and tailored products and services for consumers, and to ensure that Ontario’s financial services sector remains competitive with global markets.

The Framework outlines several guiding principles to ensure that innovative pursuits are aligned with FSRA’s broader responsibility as a regulator, including, for example, that:

  • FSRA will encourage responsible innovation in the regulated sector without directing the substance.
  • The Innovation Office will challenge existing structures and closed mindsets that stifle creativity and will use existing regulatory tools to create meaningful impacts and build trust over the long term.
  • FSRA will lower barriers to entry for new entrants in order to drive innovation, competition, and support the market’s ability to evolve sustainably.
  • FSRA’s innovation strategy and process will be adaptable to the diversity of its regulated sectors.

FSRA will undertake to uncover and implement innovative regulatory approaches through their “inside-out” and “outside-in” approaches to innovation. The “inside-out” approach reflects FSRA’s commitment to ensuring that available regulatory tools are being used to support innovators and that regulatory discretion is being used where appropriate and on an as-needed basis. This approach is intended to create a fair environment for both new entrants and incumbents, and to encourage financial services innovation for existing and potential new innovators.

The “outside-in” approach reflects FSRA’s commitment to supporting innovators as they pursue new financial services and products. This approach includes creating a regulatory environment that encourages innovation. It is also committed to adapting regulatory responses to market changes. FSRA is also working with Innovation Liaisons to ensure that innovators have clear channels to communicate with their Core Regulatory contacts as well as the Innovation Office to share their innovations with regulators. Together, the “inside-out” and “outside-in” innovation processes demonstrate a commitment from FSRA to be actively engaged in supporting innovators, with the ultimate goal of creating sustainable products and services for consumers.

The Framework and TLE Guidance that is being proposed to it describe how FSRA will use TLEs in order to allow access to a relatively risky process for gauging the market response to innovation and allow innovators and data-driven design to benefit. TLEs can be used to validate or assess new non capital market financial services products, models, and services. This approach will allow FSRA to collect information about how a particular innovation behaves on the real market. This will help them guide their regulatory response. Stakeholder feedback will be available on the proposed TLE Guidance throughout 2022.

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The opportunity to participate in TLEs will be open to market participants who are in good standing with FSRA and other applicable regulators, or who otherwise agree to be subject to FRSA’s jurisdiction. If an innovator wishes to conduct a TLE, they can apply to FSRA with their potential “Innovation Opportunity” through an application form that will be made available on FSRA’s website. The application must include, amongst other requirements, a description of the problem the innovation is trying solve, the proposed solution, and the desired outcome from the testing.

Innovators in the auto insurance industry now have access to the first test environment. The application form is now available Here. Note that FSRA reserves the right to limit the length of the testing periods granted, but not exceeding two years. Applicants who require additional testing time after the expiration of the initial period may request a renewal. The maximum amount of time allowed is two years. The applicant may request a shorter or renewed testing period at the sole discretion of FSRA.

The Framework and TLE Guidance reflect FSRA’s ongoing commitment to innovation in Ontario’s financial services sector. The Framework and TLE Guidance will be implemented by FSRA through 2022. This is a positive step for innovators in Ontario who are working to develop new financial services solutions.

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