Financial services lawyers anticipate stricter rules on open banking

Lawyers need to keep up to date on a new proposal that could have sweeping impacts across the financial services sector, says Blake, Cassels & Graydon LLP partner Jacqueline Shinfield.

The Senate Committee on Banking, Trade and Commerce released a report on June 19 urging more oversight of so-called open-banking, which is already used by at least 4 million Canadians.

Open banking lets consumers direct banks to their data with other businesses and gives consumers more options for make payments directly from their bank accounts, the senate report said. But as it stands, consumers have “no control over the scope or duration of the app’s access to their data,” the report said.

“It has implications for everything — for privacy, for potential regulatory requirements. If you are a bank, a financial services company, a fintech, someone who develops APIs [Application Programming Interfaces] — anyone in those businesses that deal with the ability to access a consumer’s information that they hold at a bank, it will be relevant to make sure you’re complying with guidelines that will be in place,” says Shinfield, who is based in Toronto.

Shinfield says that Canada has been falling behind the rest of the world in regulating the use of banking data, especially considering the country’s push for a Digital Charter.

The technology could create great products, but it all depends on the data, she says.

“In every jurisdiction — Japan, the U.S., Australia — everyone is moving toward open banking,” she says. “I was surprised when we had the consultation a few months ago questioning, ‘Is open banking something we should do?’, because a lot of things they talk about in this report are already happening. It was inevitable. To the extent people are sharing financial data, they are doing it with very little legislation in place at this point, other than basic privacy rights.”

Shinfield says it will be important for lawyers who advise fintech companies to let them know that the rules may be changing when it comes to banking data.  

She says she will be anticipating updates from the Financial Consumer Agency of Canada, department of finance, office of the privacy commissioner, as well as reading about developments in the U.K., where similar rules have already moved forward.

“It was suggested in the report that potentially there may be some registration requirements... a registry of accredited third-party providers. So, there is a potential for a type of licensing required in order to go into someone’s banking profile,” she says.

“That would likely come through some type of legislation, a licensing regime. The other changes they are talking about are privacy changes. They are talking about amending and making changes to the privacy commissioner’s role. In addition to oversight, I think you are going to see a legislative framework.”