Canada risks putting the cart before the horse on open banking

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Canada’s open banking czar is feeling the heat.

Abraham Tachjian is the man Ottawa put in charge of developing an open banking system that is expected to launch in 2023. With the clock ticking, he is getting an earful from industry players about how to get the job done.

Open banking is a system that would allow consumers and small businesses to securely share their financial data among financial services providers such as banks and accredited fintechs. Also known as consumer-directed finance, it heralds the promise of giving Canadians more control over their financial data while making it easier for them to switch lenders, open accounts and use new digital tools to manage their money.

Banks, credit unions and fintechs often have conflicting ideas about how to achieve these goals. But, interestingly, there is one issue they all seem to agree on these days: Mr. Tachjian must reorder his things-to-do list and move governance to the very top.

Don’t let your eyes glaze over when you read the G word. Governance is all about ensuring accountability and public trust in the forthcoming open banking system.

Specifically, Mr. Tachjian’s governance challenge is to create an organization that will oversee, implement and manage open banking across the country. Importantly, that entity must be independent, answerable to the Canadian government, and provide recourse to consumers and small businesses should something go wrong.

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Financial services providers are becoming antsy because Canada has yet to establish a governance model for open banking even though the system is supposed to be operational next year. It’s a head scratcher to be sure.

Establishing a governance framework is usually the first step in creating any new organization or system. But this is Canada, folks. Our country excels at doing things in the wrong order and for giving good governance short shrift. (Just look at how faulty governance created the current crisis at Hockey Canada.)

Although Mr. Tachjian is overseeing the work of four open banking working groups (they’re making key decisions on accreditation, liability, privacy and security), that work will need to be revised if a governance body is established after the fact. That, in turn, will lead to more delays in launching open banking in Canada.

That’s why banks, credit unions and fintechs are all pressing Mr. Tachjian for answers about governance. It’s time that he provide them.

For now, however, Mr. Tachjian is being circumspect. He told attendees at The Globe and Mail’s open banking event this week that he has been working with the Department of Finance secretariat on the governance model “in parallel” to the four working groups. He also indicated that a steering committee would meet later this fall to discuss the governance model in more detail.

“While policy work on the future of the ongoing administration and governance of the system has been under way internally throughout this process, we’ve reached a point where we’ll shift our focus,” Mr. Tachjian said during his keynote address at the event on Tuesday. “Once we land on these key issues, we will re-engage with the working groups and may convene additional steering group meetings as needed.”

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Great. But it’s still problematic that a secret group of people has been hashing out governance for open banking in some backroom. That lack of transparency is troubling.

To be fair, Mr. Tachjian seems to have found himself in an awkward position. As open banking lead, his marching orders are to create a “made-in-Canada” open banking regime based on the final report of the advisory committee on open banking. That report’s recommendations clearly constrain his ability to include industry players in governance discussions from the get-go.

“The lead’s work will inform the development of the governance entity, but the process to establish it will be separate to enable the lead to focus on implementing open banking expediently,” the report states.

Trouble is, that phased approach isn’t logical.

Sure, governance is a complex issue given the “divergent interests” of the various industry participants in an open banking system. But it was a mistake to allow work on the governance model to proceed in isolation from the four working groups. The governance model should’ve been established at the outset to inform their work.

“Leaving governance to the very end never works very well,” Emma Purdy, a senior partner and management consultant at Global Governance Advisors, told attendees at the same open banking event.

“It’s really about co-operation and collaboration,” Ms. Purdy said. “The governance needs to mirror that so all of the interests are aligned.”

Governance in the open banking context, she said, involves making decisions about both the operating model and the financial model.

Although the advisory committee report says the governance body should include “balanced representation” from banks, fintechs and consumer representatives, it’s unclear who will pay for it.

If banks provide the bulk of the funding, will that translate into more voting power? How will the entity safeguard its independence? Will it have enforcement powers? Will fintechs and consumer representatives have sufficient influence on the board?

Canadians deserve answers.

Governance should never be reversed engineered. It’s urgent for Mr. Tachjian and the Department of Finance to bring this discussion to the fore. Otherwise, Canada risks putting the cart before the horse on open banking.