The 2019 federal budget has continued to explicitly reference the Canadian government's interest in open banking. First surfaced in the 2018 federal budget, an Advisory Committee on Open Banking was established in September 2018 and that committee launched a Review into the Merits of Open Banking in January of 2019. That review closed in February of 2019 and thus the government would likely have had the results of submissions prior to the release of the budget. Although stated to be subject to the advisory committee findings, the government specifically stated in the budget that it aims to "assess best potential ways to move ahead with open banking" (emphasis added). Budget 2018 spoke only of a review of the merits of the idea. As with other reviews proposed by the federal government, the response period was remarkably short, suggesting a degree of predisposition in the government's intent.
Open banking is a concept under which customers of financial institutions (whether individual consumers or businesses) can permit their financial transaction data to be made available to other financial institutions on secure platforms. The idea is that by making this data available, the customers may be receive superior product offerings proactively from competitor financial institutions. Additionally, just as open government datasets can be said to fuel the development of technological solutions and applications, the availability of financial transactional data may enhance the ability of companies to develop digital banking technologies and offerings. The review paper proposed that "open banking could increase the efficiency of the financial sector by promoting a vibrant and more diverse ecosystem of financial services providers and thereby increase the utility of the sector by delivering innovative and useful offerings for consumers and small business at low cost." A number of jurisdictions around the world are already advancing this practice in various forms and consultations; it is fair to state that Canada may be behind the activity in other nations in this area.
The consultation did not predict that the federal government will adopt open banking, but clearly there is significant government interest in pursuing the idea. A subsequent series of roundtable consultations post-completion of the consultation suggests no hard roadblocks came from the consultation. Questions explored in the consultation included the ability of traditional financial service providers to engage tech companies to provide new services. According to the review launch, results for individuals could be enhanced financial insights and literacy, easier account switching or dealings across multiple service providers, receipt of targeted offers, and institutions moving to non-traditional risk models. Results for small business could be red tape reduction, single interface access to audit, accounting and tax services, faster adjudication, customized offerings and increased variety of credit offerings. No indication has been given of the release of the consultation results.
The review also focused on managing potential risks of allowing open banking. These risks may include consumer protection, privacy, cyber security and financial stability for institutions. The potential for new patterns of financial flows through the financial sector" is raised. This consideration is consistent with international thinking on the effect of technology on this industry sector. The review considered prudential risks to financial institutions (but not necessarily the risks to their business performance).
Given the international activity in this endeavor, the recent inclusion of provisions in the United States Mexico Canada Agreement on trade adding more technological flexibility in the banking sector and the developing tenor of the federal government's comments, Canadian lenders would be prudent to prepare for further activity in this area and to be ready for a potential new competitive ecosystem in which their clients will participate.