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Consumer-Driven Banking is (almost) Here! Highlights from Budget 2024

April 17, 2024 Financial Services Bulletin 3 minute read

On April 16, 2024, the Government of Canada released its budget for 2024 (“Budget 2024“) which includes the promise of new legislation this spring to begin the implementation of consumer-driven banking (i.e., open banking). The first piece of legislation will focus on key elements such as governance, scope, and criteria/process for the technical standard that will be required for data sharing. The remaining elements will be set forth in legislation expected to be published this fall.

What is Consumer-Driven Banking?

Consumer-driven banking represents a significant shift within the financial services sector, fostering a more integrated and customer-centric environment. The model enables the secure exchange of financial information between individuals, businesses, and various financial service providers, including banks, credit unions and accredited fintech companies. By allowing consumers to manage their financial data actively, consumers can tailor their banking experiences and experience a higher degree of control over their financial outcomes.

Historically, fintech companies relied on insecure methods such as screen scraping to offer financial tools, which poses substantial security risks. Instead, consumer-driven banking provides secure, selective data-sharing options that promote the use of innovative financial tools without compromising account security. This change is expected to lead to an increase in new financial applications and services, improving financial management and offering tangible benefits to consumers.

Governance

One of the most significant and long-awaited decisions is what entity will oversee consumer-driven banking (in particular, whether it will be a new fit-for-purpose entity or an existing entity with an expanded mandate). Pursuant to Budget 2024, the Financial Consumer Agency of Canada (the “FCAC“) has been given the task of supervising, managing, and enforcing the consumer-driven banking framework in Canada, including overseeing implementation, establishing core elements concerning scope, system participation, and national security safeguards and developing common rules addressing privacy, liability, and security concerns.

Part of the upcoming legislative package will include amendments to the Financial Consumer Agency of Canada Act to expand FCAC’s mandate and to introduce a new role – the Senior Deputy Commissioner of Consumer-Driven Banking – who will be tasked with overseeing the expanded mandate. The question remains whether this role will be filled by someone already within the organization, or someone with more “boots on the ground” industry experience and insight.

Other Key Highlights from Budget 2024 on Consumer-Driven Banking

  • FCAC will develop a consumer education campaign to increase Canadians’ awareness of consumer-driven banking and its potential benefits (e.g., building a credit score through non-traditional methods, access to new types of budgeting tools, making it easier to shop around for loans and mortgages, etc.).
  • The unified technical standard for data sharing will be compatible with policies managed by the U.S. Consumer Financial Protection Bureau to ensure interoperability with Canada’s largest trading partner.
  • Consumer-driven banking will be implemented in a phased approach. In the initial phase, the scope of data that financial services providers will be required to share at the request of a consumer will include data related to chequing and savings accounts operations, investment products available through online portals, and lending products, such as credit cards, lines of credit, and mortgages.
  • Entities wishing to become accredited to participate in the consumer-driven banking framework will need to apply to the FCAC. Once accredited, the entity will be permitted to request financial data, at the instruction of a consumer, from another financial services provider. Entities will be subject to mandatory reporting of key information on a regular basis to maintain their accreditation.
  • The legislation to be introduced will expand the existing authority of the Minister of Finance to, for instance, issue directions to the FCAC to ensure the protection of national security and the best interests of Canada’s financial system.
  • Provincial credit unions and Crown corporations that act as banks and that opt-in to the consumer-driven banking framework will not be subject to direct oversight by the federal market conduct regulator – the provinces and territories will retain the authority to impose their own requirements on entities subject to their jurisdiction.
  • A review of Canada’s consumer-driven banking framework will occur after three years to ensure alignment with principal policy objectives.

AI and Fintechs

Budget 2024 also announced substantial investments in Artificial Intelligence, including a $2 billion AI Compute Access Fund and Canadian AI Sovereign Compute Strategy over five years.

The implementation of consumer-driven banking presents significant opportunities for fintechs to be at the forefront of this innovative landscape. By leveraging the enhanced AI support and capital investment incentives outlined in Budget 2024, these businesses can potentially develop technologies that align with the new consumer-driven banking framework, positioning them as leaders in the evolving financial sector.

by Darcy Ammerman and Fengge Sun (Articling Student)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024

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