Change tends to occur at a snail’s pace in Canada – and for once that might not be such a bad thing.
The Trudeau government is taking another baby step toward spurring more competition in the financial-services sector by appointing Abraham Tachjian as its open banking czar. Mr. Tachjian, who is a digital doyen, now faces the laborious task of developing a made-in-Canada open banking regime.
Open banking, of course, is a system that would allow consumers and small businesses to securely share their financial data among financial-services providers such as banks and accredited fintechs. Also known as consumer-directed finance, it heralds the promise of giving Canadians more control over their financial data and making it easier for them to switch lenders, open accounts and use new digital tools to manage their money.
It’s all very enticing, especially since our banks always seem to find new ways to squeeze more service fees out of us. That’s why, dear readers, it pains me to be an open banking buzz kill – at least for now.
As easy as it is to be seduced by newfangled technologies, there are risks involved with any kind of financial innovation. (Americans learned that lesson the hard way during the financial crisis of 2007-09.) That’s why we should be relieved Ottawa isn’t rushing headlong into open banking despite mounting pressure from financial technology startups, or fintechs.
This might be the one instance where our legislators’ knack for puttering is actually a blessing in disguise. The fact is, the federal government should modernize our privacy laws before giving open banking the green light.
Although Ottawa is promising to strengthen privacy rules, its legislative overhaul should begin immediately and inform Mr. Tachjian’s work on open banking. Although logic often escapes our elected officials, it should be obvious that giving fintechs easy access to our confidential banking information without proper privacy protections could spell disaster for consumers.
This isn’t the message that fintech wants us to hear. According to those entrepreneurs, Ottawa should introduce open banking lickety-split because Canada is already a laggard compared with other countries, including Britain.
“We have seen the kinds of benefits that come with open banking in other jurisdictions, and Canada has already fallen behind our peers,” reads their recent open letter to the government. “Canadians will be poorer for it, and the Canadian finance sector will be weaker for lack of innovation and competition.”
Of course, fintechs are in a hurry for open banking – their business models depend on accessing our private financial data. But rushing full steam ahead isn’t the way to build trust with consumers.
Although a federal advisory committee on open banking has provided recommendations on limiting the scope of customer information accessible by fintechs and on holding companies liable for data breaches, those proposals are simply not a substitute for strong privacy laws.
Many pieces of legislation in Canada pertain to privacy rights (at both the federal and provincial levels). But crucial to the issue of open banking is an overhaul of the federal Personal Information Protection and Electronic Documents Act (PIPEDA). The Trudeau government had begun work on an update of PIPEDA, but Bill C-11, as it was known, died because of the last election call.
It’s a good thing that C-11 met its demise. The proposed legislation was widely criticized for prioritizing commercial interests over the privacy rights of ordinary Canadians. It’s not yet known when Industry Minister François-Philippe Champagne will introduce new privacy legislation, but it appears that he has taken note of such concerns.
“In terms of timing, Minister Champagne has stated that reform of the private sector privacy law is a top priority,” his office said in an e-mailed statement. “The minister has also indicated that new legislation will consider stakeholders’ comments on the former Bill C-11.”
Mr. Champagne is also appropriately focused on harmonizing privacy laws across the country so Canadians receive the same protections from coast to coast to coast in the digital economy.
It’s really important that Ottawa gets it right because our privacy laws are antiquated relative to other countries, such as those in the European Union, which are also examining open banking.
“It’s about consumer-driven data sharing where a customer, you and I, should have the right to control, edit, manage and delete all of the information about themselves,” Sylvia Klasovec Kingsmill, global cyber privacy leader and partner for KPMG, said during a recent interview.
“We are waiting to see what the next draft of the legislation should look like in order for it to work. And it must be underpinned by strong privacy protections,” she added.
That means the government must strike the right balance by adequately protecting consumers without stifling innovation by fintechs.
Although the federal advisory committee recommended launching an open banking system in Canada as early as January, 2023, that timeline is no longer realistic.
Fintech entrepreneurs need to settle in for a while. Time passes slowly in Ottawa.
As much as Canadians crave choice, Ottawa cannot risk putting the cart before the horse on open banking. Our privacy laws must be updated first.
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