Steve Boms is the executive director of the Financial Data and Technology Association of North America.
In the 2018 federal budget, the government announced its intention to pursue a made-in-Canada approach to open banking. That meant a system that would empower consumers and small and medium-sized enterprises to have control over their financial data and the ability to safely and securely use third-party tools to help manage their finances.
Yet what followed has been a paragon of bureaucracy: a two-part, four-year advisory committee study, the 18-month appointment of an open-banking czar in 2022 to provide recommendations to the minister of finance and years of consultations with industry.
After nearly seven years of delays, Canadians still don’t have a financial services system with lower fees that lets them safely share their financial information with trusted apps to help manage money, find better deals and switch banks more easily. Entrepreneurs, meanwhile, have struggled to bring their fintech applications to market. In response, the government announced in its fall economic statement on Monday a one-year delay in Canada’s open-banking journey.
The rest of the world is much farther ahead. Open banking has been enacted and expanded in the United Kingdom, United States, Europe, Australia, New Zealand, Brazil, Singapore and more. Consumer adoption of open-banking products in these regions has increased. In places like the U.K., for example, this means lower fees, better services and more options. Capital investment in fintech and the sector’s economic output has grown in these places; meanwhile, in Canada, both shrank in 2023 for the second year in a row.
This fall marked the latest instance in which Ottawa’s indecisive approach to open banking allowed another country to leapfrog Canada. On Oct. 22 the U.S. Consumer Financial Protection Bureau finalized a regulation that will enable a legally binding consumer financial data right south of the border. According to the head of the U.S. agency, this ruling will increase competition, improve financial products and services, and reduce junk fees. The U.S. regulator had only announced its intention to move forward with open banking a year earlier.
Even if the Canadian government does finally deliver its own promise to deliver open banking a year from now, the fintech sector rightly has significant concerns that the potential framework the Finance Department is considering could stifle innovation and further restrict competition.
Throughout the consultation processes led by the Department of Finance, the fintech sector’s feedback has been unanimous: any effective open-banking framework must empower consumers and small and medium-sized enterprises to protect their data and access fintech apps.
This important concept underpins the U.S. regulatory approach and means that incumbent financial institutions such as traditional banks are not given special consideration to determine how or whether a consumer may use a third-party financial services provider. The U.S. regulator’s framework imposes consumer protection requirements on fintech businesses but tailors these requirements based on the company’s size. So, smaller fintech firms aren’t held to the same heavy compliance standards as the largest financial institutions, recognizing that they may lack the resources to meet those burdens.
By contrast, the 2024 federal budget gave the Financial Consumer Agency of Canada responsibility for delivering and overseeing Canada’s open-banking system. The agency is a small regulator with no expertise in technology-driven financial services and has previously warned consumers against using fintech tools.
The government has also been clear that, unlike other countries that have embraced open banking, it will not create a tiered process through which smaller companies that pose less risk to consumers can gain accreditation and come to market. Despite continuous concerns raised by the fintech sector and a growing number of tiered regulatory approaches internationally, this refusal by the government runs the risk of undermining the very innovation open banking is intended to facilitate.
This country stands at a crossroads on open banking. The question is: will Canada follow the successful models of other leading economies with modernized and secure financial systems? Or will the government prop up a system riddled with barriers to entry and entrench control with Canada’s incumbent financial institutions?