On January 11, 2019, the Department of Finance Canada released a consultation paper (the “Consultation Paper”) seeking the views of Canadians on the potential benefits and risks of an open banking system in order for such feedback to be shared with and reviewed by the Advisory Committee on Open Banking (the “Committee”). Comments on the Consultation Paper are due February 11, 2019.
The Consultation Paper defines “open banking” as “a framework where consumers and businesses can authorize third party financial service providers to access their financial transaction data, using secure online channels” (“Open Banking”). We have previously described Canadian and international Open Banking initiatives in prior blogs.
The Consultation Paper seeks feedback on the following questions:
- Would Open Banking provide meaningful benefits to and improve outcomes for Canadians? In what ways?
- In order for Canadians to feel confident in an Open Banking system, how should risks related to consumer protection, privacy, cyber security and financial stability be managed?
- If you are of the view that Canada should move forward with implementing an Open Banking system, what role and steps are appropriate for the federal government to take in the implementation of Open Banking?
Scope and Objectives of Review
The Consultation Paper states that the “focus of the open banking review will be in respect of financial transaction data (e.g., withdrawals or account balances) from federally regulated banks”. The review will not at this time address payment initiation, which some other jurisdictions have included within the scope of Open Banking. The paper notes the concurrent and interrelated National Digital and Data Consultations and consultations on the National Cyber Security Strategy.
The review will be guided by the objectives of (1) efficiency (including competition and economic growth concerns), (2) utility (including consumer protection concerns) and (3) stability (safety and soundness).
Risks and Benefits
The Consultation Paper includes a discussion of the potential benefits of Open Banking, such as enhanced consumer choice, greater innovation and a vibrant and diverse financial ecosystem. The Consultation Paper also discusses the potential risks relating to Open Banking, such as consumer protection risks (including liability for loss), privacy risks, cyber security risks, and safety and soundness risks. The Consultation Paper also includes a review of Open Banking models in other jurisdictions (United Kingdom, European Union, Australia, Japan, United States), including competition concerns.
The Consultation Paper specifically seeks stakeholder perspectives on these risks, in particular:
- what specific consumer protection elements are needed for the sharing of financial transaction data under Open Banking;
- how to manage the risks or enhance the benefits that Open Banking may pose from a privacy perspective;
- how to manage the risks or enhance the benefits that Open Banking may pose from a cyber security perspective; and
- whether Open Banking presents new prudential risks to financial institutions, and how to mitigate to those risks.
The Committee will assess the merits of Open Banking based on feedback from the consultation, and thereafter address implementation considerations as a second phase in 2019.