Canada’s open banking review is now facing ‘worrying’ delay

The coronavirus pandemic has thrown a wrench into the federal government’s review of open banking, causing concern that the delay could further wound financial-technology companies, while leaving scores of Canadian consumers sharing their financial data in potentially risky ways.

Open banking generally describes a regulatory framework that gives consumers control and ownership of their financial history. Prime Minister Justin Trudeau’s government announced its intention to study the merits of open banking in its February 2018 budget, but waited about seven months before taking the “first step” of announcing the appointment of a four-person advisory committee.

Finance Minister Bill Morneau released at the end of January a report on the open-banking advisory group’s findings, and announced there would be further consultations with individuals and companies this spring. That plan is now on hold until at least the fall, according to an email to stakeholders seen by the Financial Post, given the limits on public gatherings and the need for firms to focus on their businesses amid the unprecedented economic crisis.

A spokesperson for the Department of Finance said the open-banking advisory committee plans to deliver its findings later this year, as was previously planned, assuming the COVID -19 crisis relents enough to schedule an adequate number of meetings.

“The work of the review is ongoing and the Committee continues to examine issues such as governance, consumer control of data, privacy and security,” Marie-France Faucher said in an email. “When appropriate, the Committee will re-engage with stakeholders on potential solutions and standards to enhance data protection, as it relates to consumer-permissioned data sharing in the financial sector.”

However, the setback for the review has sparked concern for Canadian consumers who are already sharing financial data without a federal framework and who have recently been prompted into more fintech use by COVID -19-related bank branch closures and the need to stay home.

It is also a problem for fintech companies, some of which expressed disappointment with the delay, as they were already competing against Canada’s big banks and struggling to survive during the pandemic.

“Worrying,” tweeted Andrew Graham, chief executive and co-founder of Borrowell Inc., a Toronto-based fintech company, of the delayed consultations.

“Canadians are relying more than ever on digital services and we are behind the rest of world.”

The initial report of Morneau’s advisory committee called on “a bold, clear and concrete timeline for delivering consumer-directed finance,” another term for open banking.

A Senate banking committee report released last June likewise pushed the government to move ahead with an open-banking framework, noting that nearly four million Canadians were estimated to be using “screen-scraping” smartphone apps that access personal financial data to aggregate account information or manage money, among other things.

More concerning is that screen-scraping apps do so after a consumer provides their online banking username and password, presenting risks such as fraud and identity theft.

Getting a final recommendation is “critically important” for Canadian consumers, said John Pitts, global head of policy at Plaid Financial Ltd., a San Francisco-based technology company that allows consumers to securely share financial data with apps.

Canadians are already sharing their financial information and relying on third-party fintech firms, meaning any delay in setting up further consumer protections or data-security measures is more time that consumers are going without them, Pitts said.

“It’s not a hypothetical,” he said in an interview.

While in-person roundtables may not be doable right now, phone calls and video town halls are still possible ways to gather feedback, Pitts suggested.

In Canada, though, the financial industry is dominated by the big banks, which have highlighted the historical stability of the financial system and the risks that open banking could pose to that stability.

Canada’s Big Six banks also noted in their submission to the advisory committee that financial institutions are already working with the third parties “to develop more secure methods of open banking involving the exchange of customer financial transaction data at the customer’s request.”

The Canadian Bankers Association and its members “will continue to work with the government in its ongoing, multiphase process when it resumes,” the industry group said in a statement.

Open banking could provide more opportunity for competition, broader access to alternative financial products and digital means of serving customers, according to Sue Britton, CEO of the FinTech Growth Syndicate, an advisory firm.

Canadians are relying more than ever on digital services and we are behind the rest of world.