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Minister Freeland releases final report with 34 recommendations on Open Banking from the Advisory committee

Department of Finance Canada | Kirsten Fraser | Aug 4, 2021

Advisory committee Final report on open banking - Minister Freeland releases final report with 34 recommendations on Open Banking from the Advisory committeeWhat is Open Banking?

Open banking allows consumers and small businesses to securely and efficiently transfer their financial data among financial institutions and accredited third party service providers. This transfer gives consumers access to a more complete financial picture and other useful services to improve their financial outcomes.
Open banking
can connect families with a broader range of budgeting or savings tools and provide financially marginalized Canadians access to low cost, automated support to manage their finances.  Open banking can enable Canadians with limited credit history, including newcomers, access to credit based on their financial transaction history.  The value proposition of open banking for small and medium enterprises (SMEs) is also strong. Open banking can facilitate faster adjudication of loans and provide access to new forms of capital . Automated financial tools delivered through an open banking system can streamline the management of bills, invoices, payroll, and taxes to reduce the complications of running a small business.

How Should Open Banking be Implemented?

To eliminate screen scraping, the initial phase of open banking should be implemented quickly, with the system becoming operational by January 2023. The implementation should be neither exclusively government-led nor industry-led. Instead, Canada should pursue a hybrid, made-in-Canada approach that recognizes the potential for government and industry to collaborate, each with appropriate roles. 

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A hybrid, made-in-Canada open banking system should have the following core foundational elements:
1. Common rules for open banking industry participants to ensure consumers are protected and liability rests with the party at fault;

2. An accreditation framework and process to allow third party service providers to enter an open banking system; and

3. Technical specifications that allow for safe and efficient data transfer and serve the established
policy objectives.

What does success look like in Canada?

Open banking will be successful in Canada if consumers and small businesses can intentionally share their data in a safe and efficient manner to access useful products and services without the use of screen scraping. The availability of these new services will enhance the welfare of Canadian consumers and businesses and support innovation and economic growth in Canada without compromising the safety and stability of Canada’s strong financial system.

Recommendations for Vision

1. Six key consumer outcomes should provide the basis for an open banking system in Canada:

  • Consumer data is protected;
  • Consumers are in control of their data;
  • Consumers receive access to a wider range of useful, competitive and consumer friendly financial
  • Consumers have reliable, consistent access to services; 
  • Consumers have recourse when issues arise; and
  • Consumers benefit from consistent consumer protection and market conduct standards.

2. Financial inclusion should be considered in the design of an open banking system and be
complemented by financial education policies, programs, and resources.

3. Open banking in Canada requires a hybrid, made-in-Canada approach, one that harnesses the
benefits of both industry and government-led models deployed elsewhere, but better reflects the
Canadian context.

See:  Review: Financial Consumer Agency of Canada (FCAC) submission to Advisory Committee on Open Banking

Recommendations for Scope

4. Federally regulated banks should be required to participate in the initial scope of the open banking system and provincially regulated financial institutions such as credit unions should have the opportunity to join on a voluntary basis. Participation from other entitles should be allowed upon meeting accreditation criteria and following the rules of the open banking system.

5. The initial scope should apply to both consumers and SMEs.

6. The initial scope should reflect data currently available to Canadians through their online banking applications, including chequing and savings accounts, investments accounts accessible through a consumer’s online banking portal and lending products. The initial scope of data shared in Canada’s open banking system should not be limited to specific use cases.

7. Consumer-provided data, balance data, transaction data, product data and publicly available data should be part of the initial open banking scope. All industry participants should have the right to exclude derived data and an obligation to justify any exclusion.

8. The initial scope should be limited to read access functions. However, the system should be built to allow the scope to be expanded to include new types of data and write access functions once the system is established and the risks can be fully understood and addressed.

All participants within the open banking system should be equally subject to consumer-permissioned data mobility requests. Reciprocity must be driven by express consumer consent and participants should not be allowed to require reciprocal data access in order to provide a product or service.


Recommendations for Governance

10. Governance must be impartial, transparent, and representative of all parties in an open banking system. Governance of the open banking system could proceed in a phased approach, commensurate with the risks posed to the system.

11. Common rules, an accreditation framework and technical s pecifications are the key foundational elements which need to be advanced before open banking can begin formally operating in Canada.

12. The Government should appoint a lead responsible for convening stakeholders to advance the key foundational elements (9 months) and implementation (9 months) of a system of open banking.

The mandate of the lead should include the following:

  • Sufficient authority: The open banking lead must be provided the authority to convene industry and to deliver solutions in key areas, notably the establishment of common rules and an accreditation framework.
  • Direct accountability to Government: The open banking lead must be directly accountable to the Deputy Minister at Finance Canada and be required to provide regular updates on the progress of this work.
  • Clear deliverables: The open banking lead must have clear deliverables, including related to common rules, an accreditation framework and technical standards development.
  • A set timeline: This work should be delivered within 18 months.
  • Appropriately resourced: The open banking lead must have appropriate financial and human resources to support him or her in this work, including both internal and external resources. Based on the experience in other jurisdiction, this resourcing should include dedicated 4-6 full time staff and access to external expertise and advice. Technical expertise will be particularly important to support progress on the development of technical standards.
  • Working groups: The open banking lead should be supported in this work through industry working groups that include balanced representation from banks, other prospective open banking participants and consumer representatives.

13. The Government should ensure the engagement of consumer representatives in this work including considering remunerating these representatives to support meaningful engagement.

14. The Government should establish a formal governance entity to provide ongoing administration and seamless transition to an open banking system following the conclusion of t he lead’s work programme.

15. The Government should consider the need to formally codify some elements of open banking in legislation or regulation, with a view to expanding to additional products or functions over time.


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Recommendations for Common Rules

Establish common rules to ensure the efficient functioning of an open banking system. The objective of these rules should be to protect consumers and ensure a positive consumer experience.

17. The Government should address legislative or regulatory impediments that could inhibit the operationalization of an open banking system, particularly with a view to resolving hurdles that necessitate bilateral contracts.

18. The common rules should ensure a consistent and high standard of consumer protection safeguarding the transmission of data while avoiding regulatory overlap in respect of how the data is used.

19. The common rules should articulate that liability flows with the data and rests with the party at fault.

20. The rules regarding complaints handling and liability attribution must be simple and efficient for consumers. Each participant must have internal and external complaints handling mechanisms in
place, as well as data traceability protocols. In all functions of open banking, consumers must be limited from liability beyond a fixed dollar amount (e.g., $50) unless gross negligence or criminal act can be proven.

21. The common rules must prescribe clear and automatic terms of redress for consumers, which include immediate compensation for any financial loss and follow appropriate standards of care for protection and redress regarding a loss of sensitive financial data.

22. Common rules for privacy should be developed for the following two areas:

  • Consent management: Ensuring consumers have a clear line of sight into who has their data, what that data includes, and how it is being used; a clear standardized process for consumers to provide and revoke consent to share their data; and considerations of how financially marginalized or vulnerable consumers will navigate an open banking system ; and
  • Privacy management: Policies, practices and procedures built into operations that protect personal information.

23. The common rules should prohibit undue pressure on consumers, ensure that information provided to consumers is accurate, clear and not misleading, and require public disclosure regarding consumer complaints received.

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24. Common rules for security should be developed for the following two areas:

  • Data security: Authentication, authorization, access management, data transit and encryption,
    tokenization, auditability and traceability; and
  • Operational and systemic risk: IT security infrastructure, APIs security and technical standards as well as prevention, incident response and monitoring, penetration testing and recovery measures.

25. A minimum “floor” of security standards should be followed by entities seeking accreditation with stronger security standards required based on risk.

26. Educational tools and resources should be developed for consumers to raise consumers’ awareness of their rights and responsibilities.

27. The common rules should be developed in an impartial, consistent, transparent and representative manner, with sufficient government oversight to ensure consumer interests are protected and public policy objectives are met.

Recommendations for Accreditation

28. The accreditation criteria should be sufficiently robust to protect consumers but not so stringent as to exclude a wide range of market participants.

29. The criteria should be sufficient to demonstrate that the participant is able to comply with the common rules related to liability, privacy and security, including having sufficient financial capacity to ensure consumers are protected in the event of loss.

30. The accreditation process should be trusted, independent, proportional to risk, transparent and coherent with other regulatory regimes. The accreditation criteria, as well as the list of accredited firms, should be easily accessible to consumers and other market participants.

31. Accreditation will be required for entities to be allowed in the open banking system with the exception of federally regulated banks. Consideration should also be given to exempting provincially regulated financial institutions, such as credit unions, from accreditation requirements.

32. Firms seeking accreditation should bear the costs of the accreditation process, with a party outside the open banking system, such as an independent entity with appropriate auditing capacity or a government regulatory body, undertaking the process. The accreditation framework and individual firms’ accreditation should be reviewed and updated at regular intervals.

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Recommendations for Technical Specifications and Standards

33. Efforts underway in the market to develop technical specifications should continue over the next 9 months, with the goal of aligning with the following principles:

  • Accessible and inclusive for all accredited system participants without requiring additional arrangements;
  • Enable a positive consumer experience without overly onerous steps that the consumer must follow to realize the benefits of open banking;
  • Enable the safe and efficient transfer of data among system participants;
  • Capable of evolving with technological change to keep pace with the rapidly evolving sector;
  • Sufficiently flexible to enable the development of new and innovative products; and
  • Compatible and interoperable with international approaches.

34. The open banking lead should engage technical expertise to actively participate in technical specifications development to ensure public policy objectives are met. Government should intervene in the process if no adequate solution emerges.

Download the Final 29 page PDF Open Banking Report by the Advisory Committee to the Department of Finance Canada --> here

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