Canadians should be required to “opt-in” to open banking if they choose, an advisory committee studying the issue for the federal government has recommended.
The Advisory Committee on Open Banking released the first findings of its study, and proposed that any rules that govern the sharing of financial transaction data must have clear, meaningful opt-in consent by consumers. This will ensure that consumers have no requirement to participate, and not have to take any positive action to avoid inclusion.
The report is the most recent step in a process established by the Federal government in 2018 to evaluate open banking, which would set the rules to allow financial transaction data to be shared – with consumer consent and specified privacy rules – so that financial services companies can develop and sell new products to consumers.
The committee undertook numerous consultations with stakeholders and Canadians and the latest release makes it abundantly clear that the protection of consumer data and the importance of gaining consumer trust is vital to any initiative. The four committee members were all selected from financial services and technology companies. There were no dedicated consumer representatives on the committee, and none of the 80 published submissions represent consumer organizations, although some consumer representation was included in a longer list of stakeholders that participated in public engagement.
One of the committee’s first recommendations in the current report is to use the phrase “Consumer Directed Finance” instead of “Open Banking”. The latter phrase is viewed as too suggestive of banking information without any restrictions, free for all to see, and so creates a negative initial consumer reaction. The committee also opined that the word “banking” was too narrow a term.
By either name, the changes would allow individual and business consumers to share financial transaction data beyond their current financial providers. This would allow third-party providers to design products and services that collected data from multiple bank accounts, multiple investment accounts, credit card statements and other financial sources and help consumers review or improve their budgeting, financial choices, spending and other solutions. The dream scenario is that consumers could easily manage all personal finance from this one tool, with full confidence that all data is protected and within their control. Consumers could more easily have accounts at different financial institutions, which could allow smaller banks, credit unions and others to attract new customers with niche products.
Some applications currently do some of these tasks by a technique called “screen-scraping”, in which the consumer logs in to the app, which then logs into individual accounts using log-in and password information provided by the consumer. The existence of these services proves a consumer demand, but weaknesses include security and liability risks that occur any time log-in and password information is shared. Open banking would establish the rules about the data that could be shared, as well as who would be allowed to share it.
As to the specificity of the rules, the committee indicated the government’s role would be “to set the guardrails in a manner that protects consumers and participants, while allowing innovation to flourish.”
A vast majority of the published submissions make very similar points. Open banking is an important development that consumers will value as long as their data is protected, and the rules aren’t so strict as to stifle innovation.
Consumers Council of Canada President Don Mercer notes that consumers could either be winners or losers from any push to open access to their transaction information, but that regulators and self-regulators fail to provide independent consumer groups of the resources necessary to properly contribute to public policy decision-making about how open banking can work best for them. “The public consultation was largely dominated by those who stand to make money from knowing what’s in consumers’ wallets and what they spend it on,” Mercer said. “Organizations representing consumers were not in the picture. This will be clear to anyone Canadian who reviews the report.”
The Advisory Committee report is peppered with self-congratulatory language, with phrases such as “innovative, customer-centric approach of Canadian financial institutions” and “world-leading and competitive financial sector that has been well served by collaboration between government and industry participants.” Consumers would likely offer a less flattering assessment on how well government rules and industry practices protect their financial information, inform them of consumer protection, settle disputes with financial services providers and fairly design online financial agreements.
The report recommended that Canadian policymakers follow developments in the United Kingdom and Australia. In the former, adoption has reached one million consumers, while in the latter, implementation was recently pushed back six months to June 2020 over security and privacy issues.