Industry survey shows strong support for open banking in Canada

Results of a survey on attitudes towards open banking among financial industry members were released on ‎December 16, 2021‎ by the Open Banking Expo and EQ Bank (the “Survey”). The Survey shows a generally positive attitude towards the implementation of an open banking system ‎in Canada with 93.89 percent of respondents replying that Canada’s payments network would benefit from open banking.

The Survey follows on the release of the Advisory Committee (the “Committee”) on Open Banking’s final report in August of 2021 (the “Report”). The Minister of Finance appointed the Committee in 2018 to investigate the merits of open banking in Canada. The Report contains 34 recommendations on the vision, scope, governance, common rules, ‎accreditation and technical specifications and standards for the implementation of a “made-in-Canada” ‎open banking system by January 2023. 

Vision, scope, governance and technical specifications

As stated in the Report, the Committee envisions a hybrid approach that is led by both government and industry and that possesses the following three core elements:

1. Common rules for industry participants to ensure consumers are protected and liability rests with the party at fault;
2. An accreditation framework and process to allow third party service providers to access an open banking system; and
3. Technical specifications that allow for safe and efficient data transfer and serve the established policy objectives.

The Committee recommends a top down approach in which the Government of Canada appoints an open banking lead and establishes a governance entity to create clear policy objectives, establish the framework and timeline, and convene with industry to implement and maintain the open banking system. The Committee recommends that all federally regulated banks should be required to participate in the first phase of open banking in Canada, while Provincially regulated financial institutions should have the opportunity to join on a voluntary basis. Other entities should be required to meet accreditation criteria before being admitted.

Industry respondents to the Survey showed a general acceptance of the Committee’s hybrid approach with ‎‎74.70 percent agreeing that regulation and market innovation must go hand in hand. However, more than half ‎of the Survey’s respondents stated that the recommendations provided by the Report set unrealistic timelines and do not go far enough to make open banking a reality in Canada. Many industry members wanted a faster response ‎with mandates as opposed to recommendations. Industry members see technical and infrastructure ‎challenges as being the biggest hurdle to the implementation of open banking in Canada, closely ‎followed by the creation of a viable business model. ‎

The Report emphasises that Canada’s open banking system should be consumer focussed. Its ‎success should depend on factors such as data protection, consumer control of data, access to ‎financial services, and the availability of recourse. The Committee concluded that Canada’s open banking system must be accessible and inclusive both for consumers and ‎market participants. ‎

To protect consumers in the early stages of development, the Committee recommends that access to consumer data ‎should be on a read only basis. “Write Access” commands such as payment initiation or account ‎creation pose higher risks requiring more complexity and safeguards. The open banking ‎infrastructure should be flexible enough to evolve with technological change and compatible with ‎international systems. ‎

When asked what the biggest impact of open banking in Canada would be, 26.51 percent of respondents to the Survey answered “giving ‎consumers control of their data”; 21.69 percent answered “enhancing competition in the market”; 20.48 percent ‎stated that it would “create greater product choices”; 14.46 percent said it would “promote fairer outcomes for businesses and consumers”; 10.84 percent said it would “stimulate innovation”; and 3.61 percent said it would “serve the financially vulnerable.”

Common rules ‎

A system of common rules regarding liability, privacy and security across the open banking system is ‎essential. Common rules enable secure, efficient, consumer-permissioned data sharing among ‎participants and reduce the current reliance on bilateral contracts between banks and third party ‎service providers. The Committee recommends that these rules strike a balance between oversight and ‎efficiency while focussing on consumer protection. This will require the creation of policies and ‎infrastructure across the open banking system. Rules must be developed to manage privacy, data ‎security and operational and systemic risk while ensuring sufficient transparency in the system to allow ‎consumers to give their informed consent. ‎

When issues arise, liability should flow with the data and rest with the party at fault. The rules regarding ‎complaints handling and liability must be simple and efficient, prescribing clear and automatic terms of ‎redress for consumers. ‎

Accreditation

Third-parties wishing to gain access to the open banking system should be required to pass a robust ‎accreditation process that is trusted, independent, proportional to risk, transparent and coherent. The ‎criteria for accreditation should be sufficiently robust to protect consumers but not so stringent as to ‎exclude a wide range of market participants. Firms should be able to show that they are able to comply ‎with the open banking system’s common rules and that they have the financial capacity to provide ‎redress to consumers in the event of loss. The accreditation process should be audited at regular ‎intervals to ensure its effectiveness.

Bill C-11

The Report acknowledges the increasing recognition of consumers’ right to control, edit, manage and delete information about themselves and to decide when, how and to what extent this information is communicated to others. The Government of Canada has taken steps to recognize this right, including the proposed Bill C-11 which would reform Canada’s privacy law by enacting the Consumer Privacy Protection Act and the Personal Information and Data Protection Tribunal Act.

Respondents to the Survey showed strong support for a more robust privacy and data protection regime. ‎‎45.78 percent stated that Bill C-11 ‎was critical to open banking while 49.40 percent responded that it should be considered in Canada’s approach ‎to open banking. 18.07 percent of respondents answered that they believe security and privacy will be one of ‎the biggest challenges to the open banking system. ‎

Conclusion

It is clear that industry members see a myriad of benefits to the implementation of an open banking system, as proposed by the Committee in its final report. Both the ‎Report and the Survey call on the Government to take urgent steps for its implementation. ‎

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