Open banking is a safe and secure technology that allows consumers to enable banks to disseminate their information to third party services providers. As a concept, open banking is more developed in other countries such as the United Kingdom (the UK) and Australia. In Canada, the concept is steadily evolving and is still being deliberated among lawmakers. This article provides a quick synopsis of the current regulatory state of open banking in Canada, with a view towards its possible implementation.
In a recent consultation paper by the Canadian Department of Finance (the Consultation Paper) the term open banking is described as "a framework where consumers and businesses can authorize third party financial service providers to access their financial transaction data, using secure online channels." An alternative characterization of open banking as "consumer-directed banking" was proposed in a recent meeting of the Canadian Senate's Standing Committee on Banking, Trade and Commerce (the Senate Committee), which appears to support the consumer-centric vision of open banking in Canada. What this could mean is that customers in an open banking ecosystem will be able to seamlessly share their financial data with financial services providers, and afford service providers access to their bank accounts in order to facilitate payments, budgeting or other services. The Department of Finance and the Senate Committee are continuing the discourse on open banking among market participants and consumers alike. For example, the Department of Finance, through its Advisory Committee on Open Banking, has solicited industry feedback on what open banking means for Canada through the Open Banking Policy Lab initiative, which is a dedicated resource on the subject.
Open banking is expected to use the application programming interface (API) technology, which, generally speaking, includes a security framework and certain consent mechanisms. This presents a unique opportunity for technology companies looking to invest in this area. Open banking is also expected to present business opportunities for financial institutions who may need to rethink how certain services are directed towards consumers. Meanwhile, Canadian regulators are focused on the legal and regulatory environment within which open banking will be expected to operate. Potential issues around privacy, data protection, consumer protection, IT infrastructure, cybersecurity and anti-money laundering are but a few concerns that follow the innovation of open banking. The Consultation Paper puts it this way: "For an open banking framework to deliver on its possible benefits, it must secure customer trust by having appropriate consumer protection and privacy safeguards, and support the safety and soundness of the financial sector."
Ultimately, how Canadian regulators construe open banking will inform any legal and regulatory obligations that attach to this technological and social innovation. In the UK, for example, regulators have applied APIs uniformly across the nine biggest financial institutions, making compliance and participation by such institutions mandatory. Having uniform APIs ensures an even-handed approach to regulating open banking, and that any risks it presents are consistently managed by market-participants. While it is unclear whether this approach will be adopted in Canada, it is a certainty that open banking will introduce a new compliance and regulatory regime for the financial services industry.
Thanks to Eric Vice, articling student, for his contribution to this article.
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