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Open banking review faces ‘worrying’ delay as pandemic drives Canadians to fintech

Financial Post | Geoff Zochodne | May 6, 2020

Canada delays opening banking consultations - Open banking review faces ‘worrying’ delay as pandemic drives Canadians to fintechReview setback sparks concern for Canadian consumers who are already sharing financial data without a federal framework

The coronavirus pandemic has thrown a wrench into the federal government’s review of open banking, causing concern that the delay could further wound financial-technology companies, while leaving scores of Canadian consumers sharing their financial data in potentially risky ways.

Open banking generally describes a regulatory framework that gives consumers control and ownership of their financial history. Prime Minister Justin Trudeau’s government announced its intention to study the merits of open banking in its February 2018 budget, but waited about seven months before taking the “first step” of announcing the appointment of a four-person advisory committee.

Finance Minister Bill Morneau released at the end of January a report on the open-banking advisory group’s findings, and announced there would be further consultations with individuals and companies this spring. That plan is now on hold until at least the fall, according to an email to stakeholders seen by the Financial Post, given the limits on public gatherings and the need for firms to focus on their businesses amid the unprecedented economic crisis.

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A spokesperson for the Department of Finance said the open-banking advisory committee plans to deliver its findings later this year, as was previously planned, assuming the COVID-19 crisis relents enough to schedule an adequate number of meetings.

“The work of the review is ongoing and the Committee continues to examine issues such as governance, consumer control of data, privacy and security,” Marie-France Faucher said in an email. “When appropriate, the Committee will re-engage with stakeholders on potential solutions and standards to enhance data protection, as it relates to consumer-permissioned data sharing in the financial sector.”

However, the setback for the review has sparked concern for Canadian consumers who are already sharing financial data without a federal framework and who have recently been prompted into more fintech use by COVID-19-related bank branch closures and the need to stay home. It is also a problem for fintech companies, some of which expressed disappointment with the delay, as they were already competing against Canada’s big banks and struggling to survive during the pandemic.

“Worrying,” tweeted Andrew Graham, chief executive and co-founder of Borrowell Inc., a Toronto-based fintech company, of the delayed consultations.

“Canadians are relying more than ever on digital services and we are behind the rest of world.”

The initial report of Morneau’s advisory committee called on the government to announce “a bold, clear and concrete timeline for delivering consumer-directed finance,” another term for open banking.

A Senate banking committee report released last June likewise pushed the government to move ahead with an open-banking framework, noting that nearly four million Canadians were estimated to be using “screen-scraping” smartphone apps that access personal financial data to aggregate account information or manage money, among other things. More concerning is that screen-scraping apps do so after a consumer provides their online banking username and password, potentially violating the terms and conditions of a customer’s bank account and presenting risks such as fraud and identity theft.

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Morneau, however, was unready to commit to an open-banking regime back in January. He announced a second study phase with a stronger focus on data security. The advisory committee was to gather advice and feedback from stakeholders starting in the spring, and then to deliver its findings to the finance minister later this year.

Getting a final recommendation is “critically important” for Canadian consumers, said John Pitts, global head of policy at Plaid Financial Ltd., a San Francisco-based technology company that allows consumers to securely share financial data with apps.

Canadians are already sharing their financial information and relying on third-party fintech firms, meaning any delay in setting up further consumer protections or data-security measures is more time that consumers are going without them, Pitts said.

“It’s not a hypothetical,” he said in an interview. While in-person roundtables may not be doable right now, phone calls and video town halls are still possible ways to gather feedback, Pitts suggested.

“In a few months we won’t be saying that Canada’s risk-averse approach in financial services has kept us in good stead like many attributed as the reason we suffered little in the 2008 financial crisis.”

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In Canada, though, the financial industry is dominated by the big banks, which have highlighted the historical stability of the financial system and the risks that open banking could pose to that stability.

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