Chinese tech giant Tencent’s reported lead investment in Neo Financial’s recent funding round comes as Canadian regulators are tightening oversight of foreign ownership of fintechs, raising questions about the Calgary startup’s future.

The deal: Earlier this month, The Logic reported Neo had raised another $362 million in debt and equity, but with $112 million in shares priced at a quarter of their previous value. The majority of shares were sold to a single undisclosed buyer based in China, The Logic reported. That buyer is Tencent, The Globe and Mail reported Wednesday. Tencent’s approximately 10 per cent stake in Neo did not come with the right to a board seat or access to data about Neo customers, and the Chinese firm will receive less information about the fintech’s performance than other investors, the report said. Chinese companies are required to share information with their government if requested.

Neo co-founder and chief commercial officer Jeff Adamson told The Globe the firm would not disclose Tencent’s identity out of respect for investor privacy and that it still qualifies as a Canadian-controlled business. Neo and Tencent did not respond to requests for comment.

Under the microscope: Fintechs face significantly less oversight than banks on a wide range of matters, including foreign ownership. That’s changing under new regulations, however. The minister of finance will conduct national security reviews of payments companies that apply for registration under the Bank of Canada’s new supervisory mandate that took effect this month, and must notify the institution of significant ownership changes. A Finance Department overview of forthcoming open banking legislation obtained by The Logic suggests companies that register for accreditation under the framework will also be subject to national security reviews.

The Finance Department did not respond to a request for comment by deadline. Bank of Canada spokesperson Paul Badertscher confirmed payments companies will undergo national security reviews, but did not provide further information. Neo did not respond when asked if it’s concerned Tencent’s investment could complicate the company’s registration efforts for open banking or as a payment services provider.

Not just fintechs: All companies need to carefully review fundraising deals and ownership changes to ensure they don’t run afoul of U.S. or Canadian laws, said Konata Lake, a venture capital lawyer at Torys. The Investment Canada Act grants the government the power to review foreign investments of any size to ensure they don’t threaten national security. If the firm operates in the U.S., it will also have to be mindful of American rules surrounding foreign investment and governance rights, he said. “You want to think through all of that against the applicable rules, and do so quite carefully,” he said.

Innovation Department spokesperson Alison Reilander said she was unable to provide a comment by deadline, or confirm whether the department intends to review Tencent’s investment in Neo.

Financing crunch: Optimism has returned to the Canadian fintech industry amid upcoming regulatory changes, rising valuations and more partnerships with traditional financial institutions. But the sector still faces capital challenges, said Jan Christopher Arp, founding general partner of the Holt Xchange, a fintech venture capital fund. Foreign investment can be part of the solution, he said: “Foreign direct investment is very important for Canada.”