Ottawa releases long-waited blueprint to usher in open banking in Canada
But the fintech industry and consumers may have to wait years for it to be implemented
Author of the article:Stefanie Marotta
Publishing date:Aug 04, 2021 •
Finance Minister Chrystia Freeland released the open banking report on Wednesday. PHOTO BY REUTERS/PATRICK DOYLE/FILE PHOTO
The Canadian government released the belaboured final open banking report on Wednesday afternoon after months of delays that drew concern across the financial technology sector.
The advisory committee’s review on opening banking — a regulatory framework that would allow consumers to determine how to share their banking data with financial service providers or move their information from one institution to another — recommends a framework aimed at safeguarding customer banking information. It could also open Canada’s financial services sector to competition from financial technology startups or “fintechs.”
“Consumer-driven finance, or open banking, is already part of Canadians’ lives. Many use digital services every day to manage their money, to budget for expenses, and to make investments,” Finance Minister Chrystia Freeland said in a statement. “Working towards a regulated, made-in-Canada system will make sure that we continue to enjoy a strong, stable, and innovative financial sector that is globally competitive, promotes consumer choice, prioritizes data privacy, and contributes to economic growth.”
The regulatory change could reduce barriers to switching financial institutions, which currently encourages customer loyalty to their current bank, and would allow fintech companies to compete more directly with incumbents — a change that could put pressure on the bottom lines of Canada’s Big Six banks.
The advisory committee’s report recommends that the federal government introduce a “purpose-built governance entity” to oversee the implementation of an open banking framework.
It also outlines three “foundational elements,” including rules that allow open banking industry participants to protect customer data, as well as ensuring liability falls to the right person or entity; a framework and process to allow third party service providers, such as payment processors, to participate in open banking; and technical details on processing safe and efficient data transfers.
Currently, fintech companies use a form of technology known as screen-scraping to access the customer data they need to process transactions. Consumers share usernames and passwords from their financial institutions to allow applications to access their bank transaction history, a process that could put the customer at risk of privacy data breaches.
As many as four million Canadians use data-driven financial service providers that require screen-scraping, according to a 2020 report by the government’s advisory committee.
The final report calls on the federal government to implement an open banking regime that eliminated the use of screen scraping by providing other solutions.
“To date, Canada has been slow to roll out a regime for open banking and has fallen behind other jurisdictions in introducing an agile regulatory framework that allows new entrants and new technologies to safely and securely enter the regulated sector,” said Patrick Searle, director of cyber initiatives at the Council of Canadian Innovators, a lobby group which represents more than 140 Canadian technology companies.
“The last federal budget contained zero references to this important policy initiative of the government. Now is the time for Canada to adopt a consumer-directed framework for our financial system that helps drive Canada’s growing fintech sector while offering consumers modern, innovative, and safe ways of banking.
The report also says that the industry could have to wait multiple years for a formal governance entity and legislative framework to be implemented. Open banking frameworks have already been adopted by the United Kingdom and other global markets.
“Time is of the essence to protect and empower Canadians with access to a wider range of useful, competitive and consumer friendly financial services,” said Blair Wiley, chief legal officer at Toronto fintech Wealthsimple Technologies Inc.
“The Canadian financial sector is undergoing a rapid digital transformation, and we urge the Government of Canada to adopt the recommendations of the Advisory Committee without delay. It is critical that no further time is lost in establishing an open banking framework that will benefit millions of Canadians.”
Open banking has been on the federal government’s radar for years. Prime Minister Justin Trudeau’s government said in its February 2018 budget that it would review the “merits” of open banking. Seven months later, former finance minister Bill Morneau launched a four-person advisory committee to review opportunities and challenges involved with the framework.
In January 2020, Morneau released the group’s initial report, which rebranded the regime as consumer-directed finance and recommended that another report be produced on a proposed regulatory framework. The final review was delayed by pandemic.
The Canadian government released the belaboured final open banking report on Wednesday afternoon after months of delays that drew concern across the financial technology sector.
The advisory committee’s review on opening banking — a regulatory framework that would allow consumers to determine how to share their banking data with financial service providers or move their information from one institution to another — recommends a framework aimed at safeguarding customer banking information. It could also open Canada’s financial services sector to competition from financial technology startups or “fintechs.”
“Consumer-driven finance, or open banking, is already part of Canadians’ lives. Many use digital services every day to manage their money, to budget for expenses, and to make investments,” Finance Minister Chrystia Freeland said in a statement. “Working towards a regulated, made-in-Canada system will make sure that we continue to enjoy a strong, stable, and innovative financial sector that is globally competitive, promotes consumer choice, prioritizes data privacy, and contributes to economic growth.”
The regulatory change could reduce barriers to switching financial institutions, which currently encourages customer loyalty to their current bank, and would allow fintech companies to compete more directly with incumbents — a change that could put pressure on the bottom lines of Canada’s Big Six banks.
The advisory committee’s report recommends that the federal government introduce a “purpose-built governance entity” to oversee the implementation of an open banking framework.
It also outlines three “foundational elements,” including rules that allow open banking industry participants to protect customer data, as well as ensuring liability falls to the right person or entity; a framework and process to allow third party service providers, such as payment processors, to participate in open banking; and technical details on processing safe and efficient data transfers.
Currently, fintech companies use a form of technology known as screen-scraping to access the customer data they need to process transactions. Consumers share usernames and passwords from their financial institutions to allow applications to access their bank transaction history, a process that could put the customer at risk of privacy data breaches.
As many as four million Canadians use data-driven financial service providers that require screen-scraping, according to a 2020 report by the government’s advisory committee.
The final report calls on the federal government to implement an open banking regime that eliminated the use of screen scraping by providing other solutions.
“To date, Canada has been slow to roll out a regime for open banking and has fallen behind other jurisdictions in introducing an agile regulatory framework that allows new entrants and new technologies to safely and securely enter the regulated sector,” said Patrick Searle, director of cyber initiatives at the Council of Canadian Innovators, a lobby group which represents more than 140 Canadian technology companies.
“The last federal budget contained zero references to this important policy initiative of the government. Now is the time for Canada to adopt a consumer-directed framework for our financial system that helps drive Canada’s growing fintech sector while offering consumers modern, innovative, and safe ways of banking.
The report also says that the industry could have to wait multiple years for a formal governance entity and legislative framework to be implemented. Open banking frameworks have already been adopted by the United Kingdom and other global markets.
“Time is of the essence to protect and empower Canadians with access to a wider range of useful, competitive and consumer friendly financial services,” said Blair Wiley, chief legal officer at Toronto fintech Wealthsimple Technologies Inc.
“The Canadian financial sector is undergoing a rapid digital transformation, and we urge the Government of Canada to adopt the recommendations of the Advisory Committee without delay. It is critical that no further time is lost in establishing an open banking framework that will benefit millions of Canadians.”
Open banking has been on the federal government’s radar for years. Prime Minister Justin Trudeau’s government said in its February 2018 budget that it would review the “merits” of open banking. Seven months later, former finance minister Bill Morneau launched a four-person advisory committee to review opportunities and challenges involved with the framework.
In January 2020, Morneau released the group’s initial report, which rebranded the regime as consumer-directed finance and recommended that another report be produced on a proposed regulatory framework. The final review was delayed by pandemic.
Wed., August 4, 2021
TORONTO — A government working group on so-called open banking recommends that a regulated system for sharing personal financial data with third parties like robo-advisors and budgeting apps be put in place by 2023.
The report released Wednesday by the Advisory Committee on Open Banking said that the timeline is "ambitious" but that it's important to roll out a system quickly because technology has outstripped regulation in a rapidly changing financial services industry.
More than four million Canadians already use some form of open banking — which involves granting third-parties such as financial technology companies access to bank data — but that some current practices create security and liability risks.
Most third-party apps currently ask a user to input the username and password they use to access their bank account online. In the open banking report, the advisory group says allowing third-party access to banking usernames and passwords may violate service agreements and result in consumers unknowingly bearing the risk of loss.
In order to make the 2023 timeline achievable, the report proposes that third parties be allowed to access. but not change, financial data under initial regulations. The system could then be expanded in the future to allow third parties to complete tasks like payments and account creation.
Minister of Finance Chrystia Freeland welcomed the report, saying in a statement that she looks forward to reviewing the recommendations.
"Working towards a regulated, made-in-Canada system will make sure that we continue to enjoy a strong, stable; and innovative financial sector," she said.
Patrick Searle, director of cyber initiatives at the Council of Canadian Innovators, said in a statement that he hopes the government moves quickly in reviewing the recommendations.
"To date, Canada has been slow to roll out a regime for open banking and has fallen behind other jurisdictions in introducing an agile regulatory framework that allows new entrants and new technologies to safely and securely enter the regulated sector," said Searle.
"The last federal budget contained zero references to this important policy initiative of the government."
The report recommends that all federally regulated banks be required to participate, while it would be optional for provincially-regulated institutions such as credit unions.
It says small and medium businesses should also be given initial access along with consumers.
The committee also recommends the government appoint someone responsible for further consultations and seeing the system through a set timeline.
The advisory committee first launched a review of the merits of open banking in 2018 at the request of the Minister of Finance, while this second, more in-depth review was launched in January 2020.
This report by The Canadian Press was first published August 4, 2021.
Ian Bickis, The Canadian Press
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