HSBC Canada breaks with Big Six banks in call to encourage fintechs

While Canada’s Big Six banks urge caution about the introduction of open banking, the Canadian subsidiary of U.K.-based multinational HSBC wants the federal government to require banks to share information with the fintechs trying to compete with them. 

In a February 2019 submission to the finance department’s advisory committee looking at open banking rules, recently made public, HSBC Canada CEO Sandra Stuart requested the government introduce legislation mandating “open banking,” where third-party financial-services firms can access customer information online, meant to provide consumers with new services. 

“We believe it is critical that the Government bring forward legislation that sets a formal date for a Canadian open banking regime to come into force,” Stuart wrote; HSBC Canada confirmed this week the submission still represents the bank’s position, but did not answer questions about why it’s diverging from the Big Six. 

HSBC Canada is the only foreign bank or subsidiary to make public its submission to the committee. It has successfully pulled business away from the Big Six in the past. In 2018, it slashed its mortgage rate, taking away some of the market, and announced plans to increase its bank branches in the country. It’s also shown a desire to work with Canadian startups. In May 2019, it opened a Toronto-based lab to partner with fintechs and AI startups; that June, it partnered with Montreal-based Element AI on a data analysis project. 

The open banking committee issued an interim report last month recommending users be given control of their financial-transaction data. It’s now studying the data security necessary for such transfers and will release a subsequent report later this year.

The country’s six largest banks—BMO, RBC, TD Bank, National Bank, CIBC and Scotiabank—sent a joint submission to the committee, which identified a number of risks to implementing open banking, including potential threats to the country’s financial stability.

“The complexity and interconnectedness of open banking exacerbates the risks to the financial system as a whole,” reads the submission from the Big Six.

Stuart, by contrast, wrote that she was “hard pressed” to see how open banking could pose a systemic risk to the financial system. She highlighted HSBC’s experience with open banking in other regions, and urged the government to institute a U.K.-style regulatory approach, whereby fintechs are required to meet certain security and insurance standards and work under a single open API.

“As in the United Kingdom, we see value in the Government requiring all of the major Canadian banks to participate in open banking,” Stuart wrote.

HSBC’s arguments echo the submissions of over a dozen fintechs. Plaid, which Visa acquired last month for US$5.3 billion, wrote, “Consumers should be able to access via third party channels any information they would be able to access directly through their financial institution’s website or printed statements.” 

It’s not just fintechs and HSBC pushing for open banking. Toronto-based Equitable Bank and Surrey, B.C.-based Coast Capital Savings—both of which do significant portions of their business online—also submitted to the review and urged adoption. Power Financial—which has invested in some of Canada’s most prominent fintechs, including Wealthsimple, Koho and Borrowell—made a similar submission. 

In the call for submissions to the consultation, the government identified financial-transaction data from federally regulated banks as the type of information that fintechs would be able to access under new open banking rules. While the Big Six warned that open banking creates risks in consumer protection, financial crimes and privacy and confidentiality, HSBC said it wants customers to be able to share even more information.

“In our view, the larger the pool of available customer data, the greater will be the potential benefits that consumers can derive from an open banking regime,” its submission says. 

The Big Six’s submission repeatedly highlights concerns identified in a separate submission made by the Canadian Bankers Association (CBA). HSBC, which is a CBA member, makes no mention of the group’s submission in its own. 

The CBA did not directly answer The Logic’s questions, including why its submission differed in certain areas from HSBC’s. Sharon Wilks, head of HSBC media relations, said the bank was consulted on the CBA’s submission, which suggests the industry come up with rules governing the sharing of financial information. 

“There is also an opportunity for industry action to align on specific security standards that may be a more efficient and nimble means of ensuring adherence to the maintaining, processing, and sharing of customer data safely and securely,” reads the CBA’s submission.

Meanwhile, HSBC wants the government to set rules: “There would appear to be a risk that the US reliance on contractual agreements could potentially inhibit the longer-term growth of the fintech sector,” wrote Stuart. 

“The argument being that the need for a fintech to negotiate individual contractual arrangements with each of the banks whose customers it wishes to deal with, would be extremely cumbersome and difficult to implement.”

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