Ottawa releases long-waited blueprint to usher in open banking in Canada

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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.

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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.”

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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.

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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.

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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.

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“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.

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“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.

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