Unlocking the Future of Finance: Part 3 - The Dawn of Open Banking in Canada

This Part 3 of this four-part blog series explains the current open banking situation in Canada.

Part 1: Unlocking the Future of Finance: Navigating the Rise of Open Banking in America

Part 2: Breaking Down the CFPB’s Announcement

Part 3: The Dawn of Open Banking in Canada

Part 4: Open Banking Use Cases: Show me the Money

Like the U.S., Open Banking has been a topic of interest in Canada since 2018. The Canadian financial and tech communities widely agree that Canada should have established a regulatory framework by now, ideally before the U.S. The lack of such an announcement last year was a bit of disappointment for many involved in the global open finance movement.

However, recent developments are sparking optimism within the Canadian financial ecosystem, suggesting that significant progress may be on the horizon.

Something is happening.

“The Department of Finance will advance the work required to stand up a Canadian framework governing consumer-driven banking, with the goal of adopting legislation and fully implementing the necessary governance framework by 2025[1].”

Echoing the U.S. CFPB's steps, Canada's 2023 Fall Economic Statement introduces a consumer-driven banking policy (a term for open banking), focusing on secure, consumer-consented data sharing to improve financial outcomes and inclusivity. It aims to empower Canadians by removing data access fees and addressing risks like screen scraping.

Similar to the expected final CFPB ruling in the US, Canada is also moving to prohibit screen scraping. Currently, about 9 million Canadians share their financial data by giving confidential banking credentials to third-party services. This method, known as screen scraping, poses security, liability, and privacy risks. Moreover, the extensive data extraction requires significant computing resources, often burdening financial institutions with limited control over this practice. They could block such access to account aggregators to avoid this, but at the risk of reducing customer satisfaction, which they typically avoid.

March 24, 2024 and April 16, 2024: Key Open Banking Milestones?

On March 20, 2024[2], Canada passed an important milestone aimed at increasing competition in the banking sector. The bill, known as Bill 365, successfully passed its second reading in the House of Commons.

The policy envisions a framework that includes governance, scope, accreditation, common rules, and technical standards to ensure safety, consumer protection, and economic growth. Legislation planned for Budget 2024 will detail a phased implementation and oversight structure.

The federal government is expected to announce a legislative framework for ‘open banking’ in its 2024 budget, to be released on April 16 of this year.

 With open banking becoming a reality in Canada, credit must also be given to Abraham Tachjian, appointed by the government to lead the crucial final consultations, concluding his mission in 2023.

“When these rules come out, I don’t think it will catch anyone off guard, because it will be based on every single conversation that we’ve had,” said Abraham Tachjian in a in a recent interview with The Logic[3].

Over 50 countries have adopted various forms of open banking through regulations, market-driven initiatives, or a hybrid approach. The anticipated implementation in North America—2024 for the U.S. and shortly thereafter in Canada—marks a significant achievement and milestone that the financial community should celebrate.

source: https://www.konsentus.com/open-banking-world-map-feb-2023/

 As Colin Deacon, Independent Senator, Senate of Canada, who has been a driving force behind this movement, recently said:

"Canadians desperately need #OpenBanking (OB), now called called #ConsumerDrivenBanking, so that they can begin to use their financial data for their benefit, not their bank’s. I challenge anyone to find a public policy that’s been as robustly studied as OB.[4]"

Key Takeaways:

• Canada is poised to embrace open banking, with both industry leaders and government officials recognizing its potential benefits.

• The collaborative approach in Canada, learning from global experiences, is expected to lead to a well-considered implementation strategy.

• Open banking will transition financial institutions into API providers by replacing screen scraping with secure APIs. This shift, while not new, marks a significant change, especially for mid-sized and small banks and credit unions, as they adapt to providing secure APIs and implementing consent management to adhere to data permission regulations.

• One of the premises of open banking is to enable interoperability among financial institutions, based on a common, shared, and open standard. With FDX (Financial Data Exchange) in the US having reached the status of a de facto standard, let's hope the US and Canada will agree to use the same one.

[1] https://www.canada.ca/en/department-finance/programs/financial-sector-policy/open-banking-implementation/2023-fes-policy-statement-consumer-driven-banking.html

[2] https://www.quintenews.com/2024/03/20/327499/

[3] https://thelogic.co/news/the-interview/open-banking-czar-abraham-tachjian-exit-interview/

[4] https://www.linkedin.com/feed/update/urn:li:activity:7179211627659939841/