In his 1869 novel War and Peace, Leo Tolstoy famously wrote: "The two most powerful warriors are patience and time." How aptly this aphorism applies to Canada's multi-year journey toward open banking is likely to be determined – at least in part – next week.

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After much anticipation, Ottawa has pledged to unveil an open banking framework as part of Federal Budget 2024 – with the draft legislation itself anticipated to appear later in the year. While Canada's Advisory Committee on Open Banking, as well as a Policy Statement released with the 2023 Fall Economic Statement, have hinted at what form this framework may take, important practical questions remain.

How will Canada win the confidence of consumers through responsible governance and no-nonsense protocols while, at the same time, opening the door to an array of forward-looking innovators ready to challenge the status quo? Fintechs and major financial institutions alike will be seeking greater clarity on this, and the questions below, on April 16.

  1. What criteria and processes will be established for entities seeking accreditation to collect consumer-permissioned data?

For scaling fintechs especially, much hangs on the question of accreditation. Envisioning an approach akin to a Systems and Organization Controls (SOC) process, Canada's Advisory Committee on Open Banking recommended that "accreditation criteria should be sufficiently robust to protect consumers but not so stringent as to exclude a wide range of market participants." Industry stakeholders will be watching closely to see where Canada lands on this spectrum – and how closely its approach aligns with that of other jurisdictions.

  1. How will the government ensure the security and privacy of consumer financial data in the consumer-driven banking framework?

For open banking to succeed in Canada, consumers need to be assured that their sensitive financial information is being carefully safeguarded. The precise security and privacy protocols Ottawa decides to adopt to achieve this peace of mind will play a vital role in determining open banking's ultimate success. Australia's open banking regime, for instance, mandates the use of strong encryption and security standards to protect consumer data during transmission and storage, thus ensuring that data remains confidential and protected from unauthorized access or interception.

  1. How will the government address liability and ensure clear attribution of responsibility in case of data breaches or damages?

In its Final Report, the Advisory Committee stressed that "[c]lear attribution of liability is a crucial component of the Committee's vision of an open banking system that advances economic outcomes and consumer." While the Committee made clear that, in broad terms, "liability should flow with the data and rest with the party at fault," banks and fintech companies will be looking for the government to delineate its plans for this area in more detail.

  1. What measures will be in place to monitor and enforce compliance with the common rules governing privacy, security and liability?

The establishment of common rules around privacy, security and liability will be foundational to Canada's open banking framework. How these common rules will be enforced is another question. The fall Policy Statement affirmed that enforcement responsibilities would fall to a "government-led entity," but the exact enforcement tools this entity will have in its arsenal remains an open question.

  1. What will the recommended "made-in-Canada" hybrid model look like?

The Advisory Committee recommended in its Final Report that Canada pursue a "hybrid, made-in-Canada" approach that recognizes the potential for government and industry to collaborate. While it remains to be seen how this collaboration will be reflected in the consumer-driven banking framework, one area of collaboration will certainly concern the technical standard to be used. While the Policy Statement provided that "the government will mandate the use of a single technical standard, and will set out in legislation, principles for, and oversight of the technical standard," it is expected that industry will take a lead role in shaping these discussions.

The introduction of Ottawa's open banking framework in Budget 2024 will mark another major milestone in Canada's journey toward embracing financial innovation and empowering consumers. By taking a thoughtful approach to the questions above, Canada has the opportunity to unlock the full potential of open banking, driving creativity and collaboration, and delivering enhanced financial services to individuals across the country.

Stay tuned next week for our full analysis of Budget 2024.