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opinion

Peter Misek is a partner at the Business Development Bank of Canada's Venture IT Fund.

I recently had the pleasure of co-hosting a financial technology conference in Toronto. With more than 350 attendees, a mix of startups, venture capitalists, financial institutions, regulators, governments and others, we had a snapshot of the Canadian and global ecosystem.

What did we learn that was new? First, it is clear that as a country, Canada is behind in this hot technology space. But – and it's a big "but" – we have made tremendous strides in the past year, emerging as a Top 5 global fintech hub, according to organizations such as MasterCard. There are more than 300 operating fintech startups in Canada. We expect that to grow 10 times in the next three to five years.

However, there are major risks in this turnaround. The biggest is that Canada's structures, rules and laws are antiquated and, in many cases, actually harmful.

What do I mean by that? Well, trust is the most important commodity in an industry like financial services, and my own trust in fintech was recently shaken.

I personally know a victim of identity theft and fraud who is an accomplished technologist and operates in the fintech world. You might ask how a supposedly savvy and aware technologist was taken advantage of? By being targeted by ultrasophisticated organized crime.

What I discovered through this story is that there are too few defences for the average consumer in Canada to stop this from happening, and our venture fund believes we need to do something about it. We need to back tech companies in Canada that are going to tackle this problem. This is our open call for innovative solutions to this problem, and we're willing to put real dollars behind the effort.

Let's understand the issue, because it goes far past just being diligent about updating and securing passwords for your online accounts.

In many provinces, if someone copies your driver's licence for nefarious purposes, you cannot cancel it or get a new number. The current systems underlying the driver's licence database do not allow for alterations or removal. The only instance that would allow it is a name change. And unfortunately, the same is true with many of our other government accounts and data.

Meanwhile, the law says that you continue to be responsible for anything that happens with those accounts. This means that when you lose your driver's licence and someone uses it to impersonate you, you receive your same number back again, and thieves can continue impersonating you and you are potentially liable.

Finding a solution to helping a consumer manage this issue will need to be innovative, cost-effective and repeatable. But its value would be huge: Securing someone's driver's licence or retirement accounts will mean that identity thieves cannot impersonate you with the most significant and relied-upon government-issued identification and wreak havoc on your financial life. Another quick solution is to adopt a U.S. legal provision: Locking your credit and not allowing any new credit to be issued in your name. This is a sledgehammer solution, but at least it's first aid for a big problem.

This problem is exploding for law enforcement at all levels. Provincial, regional and municipal police are overwhelmed. In the case I'm talking about, a senior police officer admitted that forces don't have enough ability to prosecute under the current legal framework. Theft of your identification, or even financial fraud committed against you that involves less than millions of dollars, results in relatively lenient sentencing.

Protecting yourself through the credit scoring system has also been proven to be wanting. There are two bureaus in Canada: Transunion and Equifax. They are ill-equipped and poorly organized to deal with the flood of financial fraud.

What do I mean? Well, when my victim discovered the attempt on his identity, he was advised to set up an alert. Setting up an alert on his file – meaning ensuring that any potential borrower would need to confirm his identity before credit was extended – was a difficult and time-consuming process. This, despite the fact that the police were involved and finally had an arrest and a case number.

Worse, identity thieves can change your name, your address and your phone numbers by filling out applications that the bureaus receive from credit issuers without you knowing. Fail-safe mechanisms are nearly non-existent.

We face an unprecedented risk here. More than 10 per cent of Canadians have faced some form of financial fraud, according to police, who say they expect that number to rise to 50 per cent in the next 10 years. So to be clear, that means that half of Canadians will be affected, unwittingly helping to finance organized crime, terrorists and criminals. We can and must do better.

As a venture fund, we are actively looking to fund startups to solve this problem, as it transcends borders and demographics.

For law enforcement, there is a need to staff appropriately with the right skill sets. For governments, this crime should no longer be viewed as small or inconsequential. The laws must be updated, as Canadians – especially our senior population – could face serious financial, even physical repercussions. The literally hundreds of hours it took my victim to try and limit the personal damage could overwhelm a more elderly victim.

If you are a startup with a solution to any part of this challenge, please contact us.

The views expressed are the author's own and do not reflect those of the Business Development Bank of Canada and its affiliates.