MONTREAL — The creation of a new independent body to oversee open banking in Canada was among the proposals a federal advisory committee considered late last year as it prepared its final report to government.

The proposals, which The Logic obtained through an access-to-information request, were drafted by the federal government’s Advisory Committee on Open Banking for discussion during the government’s second round of consultations with the private sector in late 2020. While they are not necessarily the final recommendations the committee has since submitted, they provide the clearest view so far into how open banking—a system where financial institutions share customer data with third parties, like fintechs, that can build additional apps and services using that information—might be implemented in Canada.

“A model for incorporating the dual roles of government and industry is a public-purpose organization,” the committee wrote. “In the model of a public-purpose organization, from the committee’s view, the government would set the mandate and objectives of the organization while delegating decision-making and administration to members of the organization (largely market participants).”

The organization would be in charge of accrediting would-be participants and implementing technical standards. 

The governance suggestions the advisory committee put forward for discussion late last year also included mandating membership in the organization for all of Canada’s 86 federally regulated banks, and opening up participation in the system to companies in any industry, not just those in financial services. 

The federal government has been working on developing rules for open banking since 2018, when it appointed the advisory committee, composed of four industry veterans, to study the issue on its behalf. The committee held consultations with industry stakeholders that same year about the merits of implementing open banking, concluding in a January 2019 report that Canadians would benefit from more data sharing among financial services. The committee also said that commonly used techniques for third parties to access bank data, such as “screen-scraping,” carried security risks and resulted in unreliable services.

However, the committee noted in that 2019 report that there was some disagreement among businesses about the role the federal government should play in overseeing the system. Fintechs have in the past advocated that the government take a more hands-on approach to regulation so as to limit the influence of established institutions, while banks have favoured more market-led approaches to data sharing. Both rounds of consultations between the government and the private sector included participants from banks, tech startups, lobbying groups and venture capital firms.

The committee used the second round of consultations to solicit feedback from the industry on its proposals for the system. That leaves open the possibility that some of its views could have changed since the consultations, which took place in November 2020. “Taking into consideration the input we received in the consultation process, our committee has developed recommendations on how to implement open banking in Canada,” said Kirsten Thompson, a partner at Dentons and a member of the advisory committee. “We look forward to our recommendations being released in due course.”

Still, the committee’s ideas ahead of the consultations suggest a focus on ensuring that groups beyond just financial institutions have a say in determining the system’s rules. For example, the group suggested that the head of the proposed oversight body be advised by an independent board of directors, with specific representation from consumers and small businesses “to ensure that the perspectives and needs of end users are appropriately considered.” Representatives from the organization’s membership should be limited to a minority of board seats, the committee said.

“The range of possible members—both federal and provincial; from federally regulated banks to third-party financial-service providers—reinforces the proposal that oversight of this organization should be extended to other relevant sectors to bring in responsibilities beyond financial-sector regulation,” the committee wrote.

The advisory committee also recommended that the group be funded by its members, in line with other Canadian public-purpose organizations like Nav Canada, which oversees the country’s civil-air navigation system, and Payments Canada, which oversees the country’s payments-clearing and -settlement system. Revenue should come from membership dues or volume fees, the committee said, but it didn’t specify whether the organization would impose varying costs for different types of companies. 

Blair Wiley, chief legal officer for Toronto-based fintech Wealthsimple, told The Logic that membership fees should be tiered in proportion to the size of the company or the type of access to the system it requires. Wealthsimple hopes that including a variety of firms in governing the framework will encourage broad participation in the standard, Wiley added.

The Canadian Bankers Association, a lobbying group that represents the country’s largest financial institutions, declined to comment on the committee’s recommendations, saying it looked forward to seeing the full report once it is released. The Department of Finance declined to specify when the report would be made public or whether Finance Minister Chrystia Freeland supported the advisory committee’s proposals. The committee intended to deliver its findings to the minister before the end of 2020, according to internal correspondence reviewed by The Logic.

“An Advisory Committee on Open Banking has been appointed to conduct this review and to provide advice on potential solutions and standards to enhance data protection in the financial sector,” said Marie-France Faucher, a spokesperson for the Department of Finance. “The Advisory Committee’s report will be released in due course.”

In creating a dedicated organization responsible for implementing the rules of open banking, Canada is drawing on models from other countries. The U.K., for example, has the Open Banking Implementation Entity, an organization funded by that country’s largest banks, whose representatives are involved in its decision-making.

Still, Canada has lagged behind other countries, including the U.K., in developing standards around open banking, prompting frustration from fintechs. This week, the Open Banking Initiative Canada, an industry-led group, called on Freeland to hurry in releasing its report from the second round of consultations, saying the government’s inaction was hurting the industry’s ability to develop innovative products.

“Given the slowdown in policy work during the summer and the prospect of a fall election, Canada runs the risk of another year without federal guidance on open banking,” the group’s board of directors wrote in an open letter. “This prolongs the risk of Canadians sharing their financial data insecurely and increases the risk of negative regulatory arbitrage.”