Further delay risks the continued competitiveness of Canadian financial services warns government’s advisory committee
With technology so woven into the fabric of our daily lives and finances being critical to living the two are becoming inseparable.
But how Canada embraces technology for its financial services industry could have significant impact on the industry’s competitiveness and the security of consumers’ finances.
Open banking is fast becoming standard in many parts of the world and the risk that Canada is lagging has already been identified.
In a report published Wednesday, the Department of Finance Canada’s Advisory Committee on Open Banking gave its final recommendations for implementing open banking in Canada.
It noted that Canadians are seeking ways to access innovative financial solutions but are currently often doing so using a process known as ‘screen scraping’ whereby they use a third-party platform to login to their financial institution (FI) and share data by allowing that platform to access their account.
This “presents real security and liability risks to Canadians” and to financial institutions, the report warns.
By adopting robust open banking infrastructure, the committee says that these security issues will be addressed. It also believes that open banking will aid the post-pandemic recovery for individuals and small businesses.
The report suggests that open banking in Canada should enable financial institutions to share data on a read-only basis, rather than allowing third-party platforms to make changes to customers’ accounts. It also says that FIs should be able to exclude certain data that enables them to provide additional value to customers, such as internal credit risk assessments.
“Consumer-driven finance, or open banking, is already part of Canadians’ lives,” said finance minister Chrystia Freeland. “Many use digital services every day to manage their money, to budget for expenses, and to make investments. 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.”
Core foundations
The committee has made three recommendations for core foundations of an open banking system in Canada:
- 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; and
- Technical specifications that allow for safe and efficient data transfer and serve the established policy objectives.
The committee recommends that the Canadian government appoints an open banking lead with the brief to engage with the financial services industry to develop and implement an open banking system. Consumer trust and protection will be at its heart.
Concerns among stakeholders about the current legislative and regulatory barriers to open banking should be addressed “at the earliest opportunity,” the report says.
The committee says that a specific entity should be established to oversee open banking in Canada.
“Open banking will be successful in Canada if consumers and small businesses can intentionally share their data in a safe and efficient manner to access useful products and services without the use of screen scraping,” the report states. “The availability of these new services will enhance the welfare of Canadian consumers and businesses and support innovation and economic growth in Canada without compromising the safety and stability of Canada's strong financial system.”
The full report is available at: https://www.canada.ca/en/department-finance/programs/consultations/2021/final-report-advisory-committee-open-banking.html
