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September 10, 2020 – The path towards safe and secure implementation of open banking should be guided by three consumer-focused pillars, says a new report from the C.D. Howe Institute.

In “Open Banking in Canada – The Path to Implementation,” authors Thorsten V. Koeppl and Jeremy Kronick lay out a roadmap to guide Canada’s upcoming open banking consultations, and explore the potential benefits and risks to consumers.

Open banking gives customers of financial institutions control over when and how to share their financial data, putting households and businesses back in charge of deciding when a provider can access their data. “Open banking breaks the monopoly banks and non-bank financial institutions currently have on their customer data,” write the authors.

Koeppl and Kronick propose a gradual, step-by-step implementation approach, introducing open banking to financial services with the least regulatory hurdles first. They also suggest the open banking roadmap be guided by three core objectives: generating value for consumers, building secure infrastructure for data sharing, and improving the regulatory framework to protect consumers.     

The authors argue that constrained market experimentation should underpin generating value for consumers. Third-party providers, such as “Fintechs,” should be allowed to start offering their services to consumers in a controlled environment where policymakers take into account potential risks.

Secondly, building secure infrastructure for data sharing would ensure consumers gain control over the data they generate. Technology needs to be standardized and improved so consumers can manage data access everywhere in a secure and easy way. As such, the authors call for clear legislation for data privacy, a digital ID system, and a clear liability framework regarding data sharing and usage.

Lastly, Canada’s regulatory framework needs to be brought into the age of Fintech through a new framework for handling consumer complaints from third-party providers and streamlined financial regulation across jurisdictions.

“In the long run, for open banking to become an unequivocal success, Canada will require a fundamental and extensive overhaul of its regulatory framework,” conclude Koeppl and Kronick. “Open banking may very well be the catalyst to achieve such change. If not, Canada is unlikely to realize the same benefits from Fintech that other countries like the UK or Australia are likely to enjoy.”

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For more information contact: Thorsten V. Koeppl, Professor and RBC Fellow, Queen’s University; Jeremy Kronick, Associate Director, Research, C.D. Howe Institute; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, email: nschlomer@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.