Data-Sharing Frameworks In Financial Services: Discussing Open Banking Regulation for Canada – April 2024 Re-issue

  • Markos Zachariadis, University of Manchester
person touching hologram of apps

About this Report

Note: With the 2024 federal budget announcing that Financial Consumer Agency of Canada (FCAC) will be mandated to oversee, administer, and enforce Canada’s Consumer-Driven Banking Framework (Open Banking), GRI has re-issued this report from 2020. The report introduces basic concepts and principles related to open banking, and reviews the journeys of other jurisdictions.

Data-sharing frameworks in financial services are becoming increasingly prevalent with the potential to shape drastically the future of banking and finance. As data assets are of strategic importance to financial institutions and central to their ‘datafication’ and digital transformation processes, sharing and accessing new data can alter the dynamics of competition and lead to the emergence of new players as well as nascent markets. Innovative technologies such as application programming interfaces (APIs) can help simplify data communication between systems and thus standardize the exchange of information between organizations allowing them to experiment with new, more open, business models. APIs also give the ability to effectively control openness and orchestrate ecosystems of third-parties that can add value to organizations’ supply chain and end users. Having said that, the deployment of open APIs in financial services raises numerous questions regarding the appropriate regulatory (or not) framework and infrastructure for opening up data in the banking sector.

The current paper examines the potential for an open banking framework in the Canadian market and makes an effort to identify the regulatory, economic, technological, sociological, and political debates in the industry concerning data openness. During the course of the study there was consensus from participants that discussing the “merits of open banking” or opportunities that it will bring is an outdated topic and instead the discussions should focus on the real issues and ‘pain-points’ around open banking implementation in Canada. Following a good number of interviews with FinTechs, challenger and incumbent banks, regulators, legal experts, consultants, and financial services professionals (in various part of the business as well as IT) in the Canadian market, the paper outlines a number of themes and frictions that the industry as well as policy-makers in Canada should consider when implementing an open banking framework. We believe that the findings can be generalized and be useful for practitioners and regulators around the world when exploring similar frameworks.

The paper starts with an introduction to data-sharing and open finance providing some workable definitions and comparing the relevant technologies in place. In this section we also clear various misunderstandings around ‘open banking’. The following section provides a brief description of the most popular open banking paradigms around the world: UK, EU, and Australia before we move to the Canadian context. The main findings section is organized in four parts discussing a) the objectives of open banking in Canada and whether a potential scheme should be policy-mandated or market-driven, b) the relevant regulatory issues such as liability and related data-privacy laws, c) the key debates and tensions when designing the data-sharing infrastructure (such as data openness, digital identity, security, API and data standards), and finally d) the relevant concerns and participant goals around identification of third-parties and access to the national payments infrastructure. The paper concludes with some insights from previous research on the impact of open banking on the market structure and business models in banking.