On August 4th the Department of Finance released the final report from the Advisory Committee on Open Banking (the Report). The Report recommends that Canada should push forward with open banking and proposes an 18-month roadmap with a view to implementing phase one of open banking by January 2023.
The Report is the culmination of a process that has been underway since the government first announced its intent to review the merits of open banking in Budget 2018 and tasked the Advisory Committee with leading the review.
The Report situates open banking in the context of broader trends relating to the digital transformation of the global economy and the right to data portability, noting that Canadians are increasingly seeking the ability to use and move their data to their benefit. Currently in Canada, more than four million Canadians are already sharing their financial data through "screen scraping" to gain access to innovative financial management tools. Canada has taken steps to recognize the right of data portability, first in the Digital Charter, and more recently proposed in Bill C-11 via the Consumer Privacy Protection Act.
The Report recommends that the initial phase of Canada’s open banking system should include data that is available to consumers and small business through online banking applications as well as consumer data held by third party service providers. This would include: (1) chequing and savings accounts; (2) investment accounts accessible through online banking portals; and (3) lending products such as credit cards, lines of credit and mortgages. The Report proposes an exception for derived data, being data enhanced by financial institutions or third parties to provide additional value (e.g., internal credit risk assessments).
It is envisioned that the initial scope of open banking will be limited to lower risk, “read access” activities (i.e., allowing third party service providers to receive financial data, but not edit this data on bank’s servers). The scope could potentially be expanded to include additional functions such as payment or account creation at a later stage.
With a view to ensuring open banking is available to as many Canadians as possible, both individuals and small and medium enterprises, the Advisory Committee proposes that all federally regulated banks should be required to participate in phase one. It is proposed that provincially regulated financial institutions such as credit unions should have the opportunity to join on a voluntary basis and that other entities should be allowed to participate subject to meeting accreditation criteria and following the rules of the open banking system.
The Report states that insurance data is a complex case and banking data should not be used for underwriting insurance policies as part of the initial scope of open banking.
A hybrid, made-in-Canada approach is proposed, which involves government and industry coming together to build the open banking framework. It is envisioned that industry will lead the charge on implementation and administration and government will establish policy, participants and set the timeline.
The Report sets out a path for operationalizing an open banking system by January 2023. This first phase would require:
- Common rules for open banking participants to replace the need for bilateral contracts and ensure consumers are protected – this would address liability, privacy and security;
- An accreditation framework and process to allow third party service providers to participate in an open banking system; and
- Technical specifications that allow for safe and efficient data transfer and serve the established policy objectives.
To achieve this, the Report recommends that the government appoint an "open banking lead", who is accountable to the Deputy Minister at Finance Canada.
The second phase would involve ongoing administration of the system. The Report envisions the development of a “governance entity” that would manage the ongoing administration of the open banking system and whose governance would include banks, other banking participants and consumer representatives. Consideration will need to be given to which elements of the open banking system will need to codified in legislation and regulations.
The Report proposes six key consumer outcomes that will guide the vision and help lay the groundwork for the initial phases of the Canadian open bank system:
- Consumer data is protected;
- Consumers are in control of their data;
- Consumers receive access to a wider range of useful, competitive and consumer-friendly financial services;
- Consumers have reliable, consistent access to services;
- Consumers have recourse when issues arise; and
- Consumers benefit from consistent consumer protection and market conduct standards.
The Report notes that all participants within the open banking system should be subject to consumer permissioned data mobility requests and that participants should not be allowed to require reciprocal data access in order to provide a product or service.
The Report maps out an agenda for introducing open banking, and contains many recommendations. However, members of Canada’s FinTech ecosystem have expressed frustration at how long the process to date has taken, and significant work lies ahead. The next phase will test the government’s willingness to move forward with open banking.