Rafael Morales-Guzman (Johnson Shoyama Graduate School of Public Policy, University of Saskatchewan)
In recent years, scholars and leading policymaking institutions (e.g., Bank of England; Bank for International Settlement) have shifted their understanding of banking and money away from a simple financial intermediation model towards a recognition that in modern market economies, the banking sector is the major “place” where new monetary units are created. This study examines regulatory challenges posed by Banking-as-a-Service (BaaS) in Canada’s fintech ecosystem, particularly in the areas of accountability, consumer protection, and oversight. It shows how the burgeoning BaaS sector decouples customer-facing services from balance sheets, allowing BaaS entities to indirectly engage in money creation without the oversight normally accorded to deposit-taking and loan-making banking institutions and, in so doing, prying open a long-standing and “inextricable confusion” in regulatory authority over banking in Canada. To enrich the analysis, the study also considers how similar jurisdictions have integrated BaaS into their regulatory frameworks. Drawing on these findings, it advocates for a functional regulatory approach that prioritizes systemic impact, joint liability mechanisms, and enhanced federal-provincial coordination to balance financial stability with BaaS innovation while addressing the fundamental regulatory gap created when banking functions operate outside traditional structures.