In the first hackathon in Canada by a securities regulator, 29 groups took the stage this weekend after a grueling day-and-a-half-long RegHackTO, hosted by the Ontario Securities Commission, to present their innovations. The problem statement was a tough hill to climb for the participants: bring forth solutions to tackle complexity in the Canadian regulatory ecosystem, including RegTech (Regulations Technology), KYC (“Know Your Client” compliance forms for investments), financial literacy, and overall functioning of capital markets.
After the hackathon and Demo Day hosted at Bitmaker Labs in Toronto, Existence Labs took top prize, not only beating out the competition but earning team leader Francis Pouliot – a public policy analyst, economist, and Director of Public Affairs for the Bitcoin Embassy for the past three years – a berth seat on the OSC’s FinTech Advisory Committee.
The danger – and opportunity – in the knowledge gap
The Existence Labs solution focused heavily on the knowledge gap between investors and advisors, and the knowledge gap between financial instrument issuers and advisors buying for their clients. During their pitch, they described how disparate actors – instrument issuers, advisors, and investors – have very little information on one another when it comes to verifying claims made. This not only leads to inefficient investment decisions, but opens up the doors to fraud. Throwing bitcoin into the mix only widens the door for fraud because of bitcoin’s de-regulated nature.
Existence Labs’ solution is premised on a Proof of Compliance model through blockchain, which slams the fraud door shut and validates claims made by instrument issuers and advisors for information transparency.
For those of you like me who are not blockchain experts, thankfully SoloMid (the team that won the Honourary “Most Humourous” presentation award) explained it well: Blockchain is a database technology that maintains a single source of truth for all transactions that have ever occurred in the ledger. Transactions can be encrypted for privacy, but every transaction is centralized and can never be deleted. Transactions are also attributed to each user, making tracking simple. For Existence Labs, this single source of truth foundation mixed with easy tracking was the key to their Proof of Compliance system.
In their model, the blockchain database will hold all relevant data to prove that certain actions were taken at certain times, by certain people. Further, it validates who was aware of a transaction or command and who signed off on it, instantly offering transparency and accountability for investors to verify the claims made by advisors and financial instrument issuers.
The solution tackled all four problem statements in the hackathon description, and the expertise of the team brought credibility to the solution.
Credibility, it turns out, was crucial to all of the winners. The judging panel addressed the room prior to handing out the prizes, noting that their judging was anchored in the strength of the idea as a concept, the implementation feasibility of the idea, and a bias towards people who produced a coded outcome during the hackathon (some presentations were either low-tech or incomplete). This meant more experienced people in both financial market/blockchain complexity and coding earned higher marks across the board.
— Iliana Oris Valiente (@IlianaOV) November 28, 2016
The top three was rounded out by RicLoo Labs in second place, which brought forth a TLS identity solution (think the “https” you type into secured websites mixed with the tracking power of a blockchain database for catching hackers), and Extreme Securities in third, which posited the idea that the ICO – Initial Coin Offering, much like crowdfunding mixed with an IPO – is the next generation of funding channels for private businesses that offers the OSC oversight in a way they’ve never had before.
OSC making change
When asked about the value of a hackathon and how this event will link up with the OSC’s strategy to better engage with startups, Pat Chaukos, the Chief of the OSC’s Launchpad Startup Initiative, was excited. “With the Launchpad, we are really trying to reach out to the FinTech community,” she said. “A hackathon was a great opportunity to bring the FinTech community together – with an eye to both diversity of experiences and diversity of age – in order to get some really unique solutions.”
One of the more interesting parts of the Demo Day came when two teams, both led by high school students – Advisor Moose and Pendio – walked up to the stage and bravely admitted they don’t know all that much about the deep intricacies of the financial markets. Instead, they tackled problems they knew better: validating advisor claims and ensuring that investors are not being lied to.
When asked how young people who were not very familiar with the markets fit into the innovation model that RegHackTO and Launchpad were aiming for, Chaukos indicated that they are making the OSC think more about how to be welcoming to younger people. “I thought [the two teams run by high school students] were fabulous – if only because we raised awareness. It was educational both for the hackathon participants and for the OSC. We are now thinking more about how we can reach out to young millennials and young people thinking about investing. Having them in the room got the conversation going.”
Learning and making connections
This sentiment of the power of education and deepening human connections between regulators and innovators was echoed by OSC CEO Maureen Jensen in her address to the room before handing out prizes. She mentioned her excitement at hearing all the great ideas and was happy her staff was in the room in order to hear the problems firsthand from the innovators working on solutions.
When discussing how to ensure the innovations from Demo Day are linked to the OSC’s startup initiatives, Chaukos had a forward-looking viewpoint. “We’re thinking of how the industry might be using these solutions,” she said. “So when we are asked ‘have you seen any solutions around this problem?’, we have seen so many perspectives and ideas that we can share.”
Existence Labs leader Pouliot feels the same way when it comes to opening minds to new perspectives. “So many people stay away from bitcoin because they fear the regulatory backlash or the brand, so they are looking to products like Ethereum – a different blockchain technology with a more trusted brand in the community – for their solutions.”
Pouliot mentioned after his win, “What we showed today is that you can be a bitcoin startup or even a bitcoin only startup that still resonates with regulators and with financial institutions.”
Regardless of the negative branding bitcoin may have received in the past or its rogue founding story, this hackathon made it clear that the underlying blockchain technology is powerful and can be used in many beneficial applications like identity verification, single source compliance for investments, or even to catch hackers around the world.
Whatever the application, it’s obvious that blockchain cannot be ignored, and the OSC is taking note.