On June 19, 2019, the Standing Senate Committee on Banking, Trade and Commerce released its report Open Banking: What it Means for You (PDF) (the Report). The Report discusses open banking and makes recommendations for reforms in the interests of Canadian consumers and financial service providers.
The Report defines open banking as a framework to give customers access to and control over their financial data, noting that in most countries, open banking has two elements: (1) financial data portability (the right of consumers to direct that their personal financial information be shared with another organization); and (2) payments initiation.
The Report finds that Canadian consumers have little control over their personal financial data and can find accessing and sharing their data difficult, as most of the control resides with the financial institutions that collect and store it. The Report also states that the rapid adoption by consumers of new banking technologies has created the need for fintech companies to be able to access this data easily and seamlessly. Currently, this is done via "screen scraping", wherein the customer provides the third party with the customer's bank login credentials for the customer's online banking platform. This allows the third party to extract customer financial and transactional data. Not only does this practice potentially violate the terms and conditions applicable to the customer's accounts, it was noted that this practice gives rise to risks, including identity theft, fraud, and cybersecurity, together with an inability of the customer to control the scope or duration of account access by the third party.
The Senate Committee states that in undertaking this study on open banking, it initially had concerns about providing individuals with the ability to easily share their personal financial data with parties not subject to the same scrutiny as regulated financial institutions. Over the course of the study, however, the Senate Committee became convinced that open banking is not only necessary for Canadian consumers, it needs to be implemented decisively and urgently.
The Report identifies three primary reasons why consumers need open banking regulations as soon as possible:
- To safeguard personal financial information. The Report highlights the risks of screen scraping, and discusses application programming interfaces (APIs) as a preferred alternative.
- To provide greater choice and improved financial products and services.
- To keep the Canadian financial sector strong and internationally competitive.
The Report makes 10 recommendations, some of which the Report calls for to be implemented immediately, and others over the longer-term. Some of the key recommendations are summarized below.
- The designation of the Financial Consumer Agency of Canada (FCAC) as the interim oversight body for screen scraping and open banking activities within the federal jurisdiction. The FCAC would be responsible for matters including conducting ongoing research on the benefits and risks for consumers of screen scraping and open banking activities and informing the public of that research on a periodic basis, and responding to complaints and questions from the public with respect to screen scraping and open banking activities.
- Immediate funding by the federal government to consumer protection advocacy groups to assist in research on the benefits and risks of screen scraping and open banking activities.
- The facilitation of the development by industry stakeholders of a principles-based, industry-led open banking framework that would be integrated with existing financial sector and privacy legislation, as well as the development of industry-led codes of practice. Among other things, the Report recommends that the framework identify the scope of data to be accessible and how the payments sector would be included within the framework.
- Modernizing the Personal Information Protection and Electronic Documents Act (PIPEDA) to align it with global privacy standards, including a consumer right to data portability.
- Creating a registry of accredited third-party providers for the open banking framework and establishing an innovation sandbox to allow new third-party providers to safely test and develop open banking technology.
- Introducing any relevant legislative changes to financial sector legislation when implementing an open banking framework to confirm the prohibition of the use of consumer banking data for insurance underwriting purposes, ensure continued stability of the financial sector and provide any necessary bank-specific consumer protection measures.
- Legislative changes to designate the Privacy Commissioner of Canada and the Canadian Commissioner of Competition as the co-regulatory and enforcement authorities for open data frameworks.
The Report is the latest salvo in the ongoing debate regarding open banking, control of personal financial information, and the implications of new technologies for the financial system.
These issues are also being addressed by the Department of Finance appointed Advisory Committee on Open Banking. The consultation paper A Review Into the Merits of Open Banking (PDF) was released earlier this year, and the Advisory Committee is considering responses received to date.
Also relevant is Canada's Digital Charter, recently released by Innovation, Science and Economic Development Canada. Of particular note, the Digital Charter proposes amending PIPEDA to include a data portability right.
It has been said that Canada is lagging behind other countries when it comes to the adoption of a legislative framework for open banking, and accordingly, pressure for governmental action will likely continue. However, open banking raises challenging issues which, combined with the fact that this is an election year, makes it likely that we will continue to wait for some time before seeing any meaningful response.