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Banks and other large data collectors are grappling with issues of transparency and consent, and Royal Bank of Canada’s CEO says further regulation may be needed.Mark Blinch/REUTERS

The chief executive of Canada’s largest bank says it’s time to confront a profound “societal question” about how large companies use and safeguard customers’ personal information.

Banks and other large data collectors are grappling with questions of transparency and consent, and Royal Bank of Canada chief executive Dave McKay says further regulation may be needed to set “boundaries” as customers become more aware of the volume of data companies collect about their lives.

Banks are facing pressure to make better use of vast troves of information they collect about clients, and to deploy emerging technologies such as artificial intelligence to get closer to customers and target products and services more accurately. Most banks acknowledge a looming threat from digital giants in online search, social media and e-commerce that can quickly detect a customer’s needs or wants from an array of signals broadcast through their digital habits.

But the race to glean insights from that trail of digital breadcrumbs will also test the companies’ commitment to privacy and security when faced with competitive threats.

“We’re poised for a societal discussion on how we’re going to use personal information,” Mr. McKay told reporters after the bank’s annual meeting in Toronto on Friday. “The way, I think, we’ve acted in the past globally − as governments, industries, whatever it happens to be − may not be sufficient to meet societal norms going forward. And society’s just figuring this out as we go. This is all new.”

Mr. McKay wants RBC to be part of that discussion, and said there may be room for tougher or more modern rules to set clear parameters. “Hopefully we can do it without regulation, but we may need regulation to help set the boundaries of those societal norms.”

Banks have the advantage of incumbency, with huge reach and established brands built on trust. But executives are increasingly worried that dominant digital platforms will know what a bank’s client wants well before the bank does. As payments, credit and shopping are embedded more seamlessly into everyday smartphone apps, bank brands aren’t as visible. Instead, digital competitors may see a chance to play the role of middleman, claiming a slice of the profits.

“How’s that information going to be used?” Mr. McKay said. “Are they going to broker that information to the highest bidder?”

The recent revelation that social-networking giant Facebook Inc. improperly shared with British data analytics firm Cambridge Analytica personal information belonging to 87 million people around the world, including some 622,000 Canadians, has drawn intense scrutiny to the opaque web of user agreements and privacy regulations that govern data sharing.

Ethical questions about the use of customer data will only grow more urgent as citizens’ everyday lives get more connected and ripe for analysis. RBC is one of several banks investing heavily in artificial intelligence, and now has more than 200 data scientists working on problems ranging from fraud detection to analyzing clients’ spending and saving patterns.

“It’s a societal question about what do you gather, what do you store? There are sensors in everything today, from your windshield wipers to your washing machine to you name it, that are collecting data,” Mr. McKay said. “And a lot of that data can make your life better, but who’s going to see that, and what’s the agreement?”

Banks are already heavily regulated, and subject to existing privacy laws. But Mr. McKay said it’s up to banks to simplify the way they ask customers for consent, and to have “an open and transparent dialogue” about how that information can be used for the client’s benefit.

The risks to a bank’s reputation should it mishandle customer data could be severe, as illustrated by the fallout for Facebook, which has tarnished the company’s name and wiped out tens of billions of dollars in market capitalization. But Mr. McKay stressed that “we will not burn our brand on this.”

“I think people woke up to Cambridge Analytica and said, ‘Really? You’re kidding me.’ So I think we’re just becoming aware, as citizens, of the extent of the amount of data that’s being collected. I think we’re a little naive to it.”