Report recommends new open banking regime for Canada to allow customers to share data between institutions

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An expert panel is recommending that Canada quickly create an open banking system to allow customers to share their data more easily and safely between financial institutions, urging government to move faster as digital technologies reshape finance.

A long-anticipated report from a federal advisory committee on open banking says Ottawa should aim to design, test and launch an open banking system in 18 months – or as soon as January, 2023 – built jointly by officials from government and the financial industry.

Open banking is a concept that enables consumers to securely share their banking records with financial-services providers from banks to startups. It aims to give users greater control of their data and stoke competition and innovation by making it easier to switch providers, open accounts and use financial-advice tools that compile data from different accounts.

Millions of Canadians already use some form of open banking by linking apps to their bank accounts. This is usually done through an imperfect patchwork of technologies that rely heavily on screen scraping – a technique that aggregates information from a user’s bank accounts by getting permission to use their online login credentials.

A key recommendation in the report is that, when a user requests it, financial institutions should be compelled to securely share all data that the customer could access through their online banking page. That would include data from chequing and savings accounts, but also investment accounts and loans such as credit cards and mortgages.

To drive Canada toward open banking, the report also calls for the immediate appointment of an individual, accountable to the federal Finance Department, who would convene stakeholders to hammer out the details and launch the new system. That czar would then hand control to a new, purpose-built entity to administer open banking.

The report is the culmination of consultations dating back to 2018, and sends strong signals about how government and financial institutions could move toward open banking. While Ottawa has been slow to embrace open banking, banks and financial technology startups that want to access customer data have at times been at odds. Fintechs have been calling for urgent changes to expand data sharing with third-party apps, and banks have stressed the need to balance innovation with security and privacy.

The advisory committee’s 29-page report was submitted to government in April but only made public on Wednesday. Finance Minister Chrystia Freeland welcomed the report in a news release that commits the government to move forward with open banking, but even now offered few clues about how faithfully her government intends to follow the committee’s recommendations.

“I … look forward to reviewing their recommendations as we develop next steps,” she said in a statement, promising a system that “is safe, regulated, efficient and protects [Canadians’] interests.”

The advisory-committee members were former Toronto-Dominion Bank executive Colleen Johnston, entrepreneur François Lafortune, Dentons Canada lawyer Kirsten Thompson and former MaRS Discovery District CEO Ilse Treurnicht.

Fintech leaders have complained for years that Canada’s financial-sector innovation risks falling behind other countries such as Britain and Australia that have had data-sharing rules in place for years. But some fintech executives hailed the new report as a chance to make progress.

“This report provides a clear road map for Canada to catch up with other countries who have already implemented open banking,” said Andrew Graham, co-founder and chief executive officer of fintech lender Borrowell Inc.

“With these recommendations in hand, all of us in the industry – incumbents and new entrants – should get behind this report and get to work.”

The committee recommends giving established banks and newer fintechs equal access to each other’s customer data, if the customer requests it, with exceptions for certain proprietary data companies create. At the outset, it would only cover “read-only” access to data that would not allow a third party to change banking data or initiate payments.

The committee also calls for common rules for issues such as liability when something goes wrong, an accreditation process to control which companies can access data and technical standards for security and efficiency.

The Financial Data and Technology Association of North America (FDATA), a prominent fintech industry group, applauded the report’s release but urged the government to “move quickly” to allow payment initiation services – apps that allow consumers to transfer money between financial institutions.

“The COVID-19 pandemic has demonstrated how important these services are to families and small businesses,” an FDATA statement read.

The lobbying group, based in Washington, sent a strongly worded letter to Ms. Freeland on July 22 that detailed how the delay in implementing open banking continues to affect consumers and fintechs. The letter, obtained by The Globe and Mail, named Bank of Montreal as an example of a large Canadian bank that had “aggressively” thwarted its own customers’ ability to give third-party financial tools access to their banking data.

FDATA did not explain how and why BMO had stopped customers from sharing data with aggregators. But two sources told The Globe that BMO had entered into multiple data-sharing agreements with fintechs – including Montreal-based Flinks and San Francisco-based Plaid Technologies Inc.

These agreements allowed those companies to scrape data from BMO users’ accounts with permission, then BMO abruptly cut off access amid disagreements over the terms of data-sharing deals. The Globe is not identifying the sources because they are not authorized to discuss confidential negotiations.

Flinks and Plaid declined to comment, and BMO said it had “unsuccessful” data-sharing agreements with some companies, but did not name Flinks or Plaid. The bank also said it had been working with “data aggregators” to enter into “data-access agreements” and had “successfully concluded” agreements with some companies.

“Right now, customers have no choice. If you want to connect your BMO account to a Questrade account, you cannot easily do so. A financial institution can override a customer’s consent,” said Steve Boms, executive director of FDATA. “What that does is it prevents more competition and reduces choice for consumers and small businesses.”

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