The Canadian Government has published proposed Open Banking regulations, along with a 60-day comment period, to support the implementation of the Consumer-Driven Banking Act.
The Department of Finance Canada said the regulations will come into force “in a staggered approach beginning with accreditation”.
The Consumer-Driven Banking Act, which received royal assent in March this year, has been introduced by the Canadian government to “promote financial sector competition, establish secure and efficient financial data sharing, and address the risks posed by screen scraping”.
The Open Banking regulations were released alongside proposed regulations to tackle consumer-targeted fraud, as part of the Canadian government’s broader work to develop a National Anti-Fraud Strategy.
“We are taking action to ensure Canadians can feel confident that their financial systems are secure, while at the same time strengthening economic resilience, increasing innovation and competition in the financial sector, as well as fostering new industry partnerships,” said the Honourable François-Philippe Champagne, Minister of Finance and National Revenue.
What do we know about accreditation?
The proposed Consumer-Driven Banking regulations, published in the Canada Gazette, set out criteria for four “pathways of accreditation” that are specific to the applicant entity type and that must be demonstrated by submitting requested material to the Bank of Canada.
Only those entities that meet certain requirements will be able to participate in the framework, while banks mandated to participate will not be subject to the accreditation process.
Mark Sam, founder, Major Street Advisory
Mark Sam, founder and managing director of Major Street Advisory, called the accreditation proposals “balanced”, citing the “streamlined path for RPAA [Retail Payment Activities Act] registered entities”.
His colleague at Major Street Advisory, engagement manager Ivan Koparan, also pointed to the “sped up accreditation process for firms already registered with the RPAA”, in a post on LinkedIn.
He wrote: “This streamlined process will help with adoption and avoid the situation experienced in countries like Australia where adoption was slow due to the large compliance burden in accreditation processes.”
Carrie Forbes, founder and chief executive officer of Rockstar Advisory, noted on LinkedIn that credit unions participate on “an opt-in basis”.
“Those that join apply under a lighter accreditation pathway that reflects their existing regulatory standing, meaning a declaration of security compliance rather than starting from scratch,” she said. “Fintechs apply through a more comprehensive process that requires proof of Canadian presence, insurance coverage, baseline security controls, and an ‘integrity and good character’ policy for key personnel.”
In a post on LinkedIn, Steve Boms, executive director at FDATA, wrote: “There’s a lot to digest in the proposed regulations, and FDATA will, in particular, review the requirements for accreditation of fintechs as we continue to be focused on ensuring that small fintechs can offer their services, products, and tools to Canadians just as larger fintechs can.
“A more vibrant, competitive ecosystem benefits everyone, especially the consumers and small businesses who will use the new system.”
Data scope and liability
Canada’s Consumer-Driven Banking Act specifies that participating entities will be required to share “both data provided by a consumer and product data related to deposit accounts (chequing and savings), payment products, investment accounts (registered and non-registered), and lending accounts (secure and unsecured)” when requested by a consumer or business.
Major Street Advisory’s Sam noted that data will be phased in according to complexity, “beginning with deposit and payment accounts, then moving to lending accounts, registered accounts, and then non-registered accounts”.
Carrie Forbes, founder and chief executive officer, Rockstar Advisory
When it comes to liability, Forbes explained: “Liability follows the data. The entity requesting data is responsible for obtaining consent and receiving it securely. The entity providing data is responsible for authenticating the consumer and transmitting it securely. That clarity helps to remove one of the biggest friction points in bilateral fintech-credit union arrangements.”
Koparan pointed to one part of the proposed regulations that could get overlooked and which is “explicitly excluded from the scope of regulation and therefore not mandated to be free of charge” – derived data.
This is defined as “information about a consumer, product, or service that has been significantly enhanced by a participating entity to increase its usefulness or commercial value”, Koparan quoted.
“This means that data enrichment will be key in monetizing data-out services across financial institutions, and could be a core way where smaller financial institutions (like credit unions and fintechs) recoup the investment costs required to successfully opt in to Open Banking,” he wrote.
“Canada isn’t the only market where monetization in Open Banking is top of mind. The CFPB in the USA is set to announce ‘data rationing’ where fintechs may begin paying a metered fee after a certain level of API call usage.”
Economic benefit
For Forbes, the proposed regulations “are the instrument that actually brings Open Banking into force”, adding that “after eight years of consultation, working groups, and legislative starts and stops, the framework now has some teeth”.
Koparan said it means “we’re beginning the process of operationalizing Open Banking in Canada, which is great news for consumers and fintech innovation broadly”.
The Government believes that all Canadians will benefit from the increased access to “innovative financial services and economic growth” driven by the implementation of its Open Banking framework.
It has estimated that implementing the proposed regulations will cost CAD$457.7 million over a 10-year period, while the estimated monetized benefits over the same period are $13.2 billion.
“That’s incredible economic value for consumers, for small businesses, and for the entire Canadian economy,” said FDATA’s Boms.
“But the even bigger story is structural: Canada chose a government-led, legislated model in which consumers are at the center of the ecosystem and have full control over their data. This is the approach every successful jurisdiction globally ultimately landed on.”
Further listening: Listen to FDATA’s Steve Boms on the Open Banking Expo Unplugged podcast episode ‘How is Open Banking playing out in the US and Canada?’