Home Open Banking & Finance Canada publishes long-awaited plan for open banking regulatory framework

Canada publishes long-awaited plan for open banking regulatory framework

Canada: it is more than two-and-a-half years since the government released a report proposing January 2023 as an ‘ambitious but achievable’ target date for launching an open banking system (Global Government Fintech coverage) | Credit: Maarten van den Heuvel (Pexels)

Canada’s government has published long-awaited measures to launch a legal and regulatory framework to enable open banking as it looks to play catch-up with other countries.

Progress on enabling and encouraging open banking – often referred to in Canada using the term ‘consumer-directed finance’ – has lagged nations such as the UK, whose Open Banking Implementation Entity was set up more than seven years ago, and Australia, whose ‘Consumer Data Right’ legislation went live almost four years ago.

In the Budget 2024, released this week, the government revealed plans to introduce the first of two pieces of legislation to implement a framework – ‘starting with key elements, such as governance, scope, and criteria and process for [a] technical standard’ – this spring. Remaining elements will be legislated for this autumn.

It plans to expand the mandate of the Financial Consumer Agency of Canada (FCAC) to include oversight of open banking and establish ‘foundational framework elements related to scope, system participation, safeguards in respect of integrity and national security, and common rules covering privacy, liability and security.’

The framework will also include the ‘principles and process’ for the selection of a single technical standard for data-sharing ‘that will ensure the standard is fair, open and accessible’. This will ensure, the government states, that the framework ‘meets key public policy objectives for a Canadian consumer-driven banking system’, including interoperability with an upcoming framework overseen by the US Consumer Financial Protection Bureau (CFPB).

‘Senior deputy commissioner of consumer-driven banking’ role

The 430-page Budget document, published on 16 April, dedicates a section to ‘Canada’s Consumer-Driven Banking Framework’.

Explaining why it wants to enable open banking, the government states that an estimated nine million Canadians already share their financial data by providing confidential banking credentials to service providers. But this process, known as screen-scraping, ‘raises security, liability, and privacy risks to consumers and the financial system’. The government states that it ‘wants to make it safer and more secure for Canadians to share their financial information and access new financial tools’.

‘A strong governance framework will ensure participants abide by common rules by outlining clear roles and responsibilities for participants and government, and what actions will be taken when non-compliance occurs,’ the document states.

Legislative amendments to the FCAC Act will establish the position of senior deputy commissioner of consumer-driven banking, which will be responsible for fulfilling the FCAC’s open banking mandate.

The Department of Finance will retain its role in respect of policy and legislative or regulatory development and will ‘also work with the FCAC to begin preparation and planning for these new responsibilities’.

The Ottawa-headquartered FCAC will also develop a ‘consumer education campaign’ to boost Canadians’ awareness of open banking.


Canada’s phased approach

FCAC oversight of consumer-driven banking will operate on a cost-recovery model.

‘To facilitate oversight of provincial entities, while respecting their jurisdiction, the governance model will be structured in a manner that allows for provincial credit unions and Crown corporations that act as banks to “opt-in” to governance, supervision, and participation,’ the Budget document states.

‘The creation of a new FCAC senior deputy commissioner for consumer-driven banking would ensure that provincial credit unions and Crown corporations that act as banks that opt in to the consumer-driven banking framework would not be subjected to direct oversight by the federal market conduct regulator,’ it continues. ‘Provinces and territories retain the authority to impose their own requirements on entities subject to their jurisdiction.’

The government will adopt a phased approach to what are referred to as ‘three elements of scope’: participants, breadth of data-sharing and functionality.

It plans to review the framework – which it says ‘may evolve significantly over time’ – after three years to ‘ensure it continues to meet core policy objectives and reflects the needs of Canadians’.


Mandatory for ‘largest’ retail banks

In the initial phase, the government plans to mandate participation for banks that meet a specified threshold for retail volume. This threshold will ‘scope-in Canada’s largest retail banks’, in the words of the Budget document.

Other federally regulated financial institutions, as well as credit unions, Crown corporations acting as banks, and other entities seeking accreditation, ‘will be provided the ability to opt-in’ to the framework.

‘There will be clear requirements for how various entities such as fintechs [companies], can enter and exit the framework,’ the government states.

The Financial Data and Technology Association of North America (FDATA) said in a press release that the commitments ‘mark[ed] a significant step for the financial empowerment of consumers and small- and medium-sized enterprises’ and ‘reflect[ed] a global trend towards consumer-centric financial services… bring[ing] Canada in line with the regimes established by nearly every other G7 nation’.

The CFPB presented details in October 2023 of a proposed new rule to ‘accelerate a shift’ towards open banking in the US.

RELATED ARTICLE ‘Canada unveils “ambitious but achievable” open banking plan’ – a news story (13 Aug 2021) on the government’s release of an advisory committee’s report that proposed January 2023 as the ‘ambitious but achievable’ target date for launching an open banking system

Timeline to date

It is more than two-and-a-half years since Canada’s government released a report that proposed January 2023 as an ‘ambitious but achievable’ target date for launching an open banking system.

The report, published in August 2021, was authored by an Advisory Committee on Open Banking, which had been tasked with exploring open banking’s merits in 2018.

The committee noted in its report that while the initial focus of its work was ‘to determine whether open banking has sufficient value to merit the implementation of a system, it is clear that Canadians have already answered this question’.

It recommended that the government move forward quickly to implement a ‘hybrid, made-in-Canada system’. This meant that implementation should be neither exclusively government-led nor industry-led.

‘Government should avoid being too prescriptive at the start as this could deter innovation, or prescribing too little which could lead to an inefficient market or poor consumer outcomes,’ the report said. The authors proposed a two-phase approach with the initial phase to include the design and implementation of the system. The second phase would involve the system’s evolution and ongoing administration.