TLDR; What is Open Banking? — Canada🇨🇦
Opinions expressed are solely my own and do not express the views or opinions of my employer or any other financial institution.
Note — the content below is taken directly from the Government of Canada website as a short summary of 2021, Final Report — Advisory Committee on Open Banking. For the complete report, visit- https://www.canada.ca/en/department-finance/programs/consultations/2021/final-report-advisory-committee-open-banking.html
What 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. Want to read more? — Government of Canada, Final Report — Advisory Committee on Open Banking
Why do we need Open Banking?
- Canadians are increasingly seeking the convenience of data-driven services. This trend includes a growing number of Canadian consumers who are sharing their financial data through screen-scraping to gain access to innovative financial services.
- Screen scraping presents real security and liability risks to Canadians as it requires them to share their banking login credentials with third-party service providers. As screen scraping proliferates, so too will the associated risks to Canadian consumers and financial institutions.
- More than 4 million Canadians are currently using an online data transfer method called screen scraping to share their financial data to access a broad range of financial management tools.
What is in the initial scope for Open Banking?
- The scope of Canada’s open banking system in its initial phase should include data that is currently available to consumers and small businesses through their online banking applications.
- Consumer data held by the third-party service providers in an open banking system should also be included in the initial scope of an open banking system, with similar exceptions for derived data.
- Initially, read-only access to data by 3rd party & not edit data on bank’s servers
In Scope -
5.1 Participants — Federally regulated banks are required, Provincially regulated credit unions are optional & other entities after accreditation only
5.2 User Accounts — should enable both individuals and small and medium enterprises (SMEs) to participate
5.3 Account Data — typically what’s available in the online banking data
- Consumer provided data (e.g. name, address, contact information)
- Balance data (e.g. amount of money in an account)
- Transaction data (e.g. withdrawal, transfer, and deposit information)
- Product data (e.g. account numbers, interest rates, and fees),
- And publicly available data (e.g. branch locations, ATM location, and bank hours of operation).
- Chequing and savings accounts;
- Investment accounts accessible to the consumer through their online banking portals, such as registered retirement savings plans, tax-free savings accounts, and other non-registered investing accounts including those holding stocks, bonds, mutual funds, term deposits, guaranteed income certificates; and
- Lending products, such as credit cards, lines of credit and mortgages.
5.4 Derived Data
- Participants can exclude derived data, i.e. data enhanced by the financial institution
5.5 “Read” vs. “Write” Functionality
5.6 Reciprocal Data Access — banking system be equally subject to consumer-permissioned data mobility requests. Reciprocity needs to be driven by express consumer consent and participants should not be permitted to require reciprocal data access in order to provide a product or service.
Out of Scope —
- Financial institutions should be allowed to exclude derived data — described as data enhanced by financial institutions to provide additional value to their consumers, such as internal credit risk assessments.
- Editing data — payment or account creation
Key Features —
Express (explicit) Consent by the customer
- The flow of data among financial institutions and third-party service providers must always be subject to express consent (i.e. consumers may choose to move their data in one direction or to allow back-and-forth exchanges of data between two parties).
Hybrid implementation — Government & Industry led — Core foundational elements:
- Common rules for open banking industry participants to ensure consumers are protected and liability rests with the party at fault;
- An accreditation framework and process to allow third-party service providers to enter an open banking system; and
- Technical specifications that allow for safe and efficient data transfer and serve the established policy objectives.
Consumer protection -
- System of open banking is predicated on the notion that an individual has the right to control, edit, manage, and delete information about themselves and decide when, how, and to what extent this information is communicated to others.
When is the launch of Open Banking?
- JAN 2023 — open banking should be implemented quickly, with the system becoming operational by January 2023.
- Design the system — industry to lead to test the system & seek accreditation.
- Government — stands up a purpose-built governance entity that would manage the ongoing administration of the system.
Recommendations for Vision
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 services;
- Consumers have reliable, consistent access to services;
- Consumers have recourse when issues arise; and
- Consumers benefit from consistent consumer protection and market conduct standards.
Financial inclusion should be considered in the design of an open banking system and be complemented by financial education policies, programs, and resources.
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.
