In 2018, the Federal Government launched an Advisory Committee on Open Banking. The Committee’s Final Report has been released, recommending that the government move quickly to create a regime for “open banking” in Canada. Open banking allows consumers to securely share their financial data among financial institutions and accredited third-party service providers. This gives consumers more choice and more latitude in managing their financial assets. Open banking is available in a number of foreign jurisdictions, including the United States, Australia and Japan, but has been slower to be permitted in Canada. To be sure, open banking raises a number of issues that need to be carefully considered and balanced; the Report is the next step in that process.
Fintech upstarts are looking for reciprocity and an accreditation system to give them the legitimacy they crave. Banks have little appetite for sharing client data in which they have a significant proprietary interest. It falls to government to find the right balance. Responding to the demands of Canadians to break the stranglehold banks have over them while protecting Canadians from the consequences of data portability is no easy feat. The people most keen to share their financial data are also the same ones who demand privacy protection when there is a breach. The challenge for government is to foster a world- leading fintech sector and not undermine the strongest and safest banking system in the world. The open banking debate does not take place in a vacuum. The government has good reason to slow- walk this file. There are many related moving parts in regulatory flux, including payments modernization, retail payments oversight, and privacy and consumer protection.
The 29 page Report contains 34 Recommendations, including:
Government and industry should collaborate on the implementation of an open banking system – a “made-in-Canada hybrid approach” to open banking, with the following core foundational elements:
Common rules for open banking industry participants to ensure consumers are protected and liability rests with the party at fault
An accreditation framework and process to allow third party service providers to enter an open banking system
Technical specifications that allow for safe and efficient data transfer and serve the established policy objectives
All federally regulated banks should be required to participate in the first phase; provincially regulated financial institutions (e.g. credit unions) and other accredited entities should be allowed to participate on a voluntary basis; and the initial scope should apply to both consumers and SMEs
Participants should have the right to exclude proprietary data from open banking
The government should appoint an open banking lead, accountable to the Deputy Minister at Finance Canada
The design and implementation of an open banking system in Canada should be completed within 18 months, with a targeted live date of January 2023
The Report calls on the government to move forward with an open banking system in Canada quickly. Deputy Prime Minister and Minister of Finance Chrystia Freeland thanked the Advisory Committee for its work and said that she “..look(s) forward to reviewing [its] recommendations as we develop next steps.” And a federal election may be looming. Open banking in Canada may not be here as soon as we think.