Standing Senate Committee on National Finance (NFFN) (May 28, 2024)
ISSUE: FCAC’s role in the Consumer-Driven Banking Framework (Budget 2024)

Key points

• FCAC welcomes its future role in overseeing, administering, and enforcing Canada’s Consumer-Driven Banking Framework, as announced in Budget 2024.
• As a leader and innovator in financial consumer protection, FCAC is well-placed to take on this new responsibility.
• FCAC will pursue a Consumer-Driven Banking Framework that prioritizes innovation and includes strong and consistent protection for financial consumers.
• Consumer-driven banking enables consumers to securely use data-driven financial services that can help them better manage their finances and improve their financial outcomes.

On funding for consumer-driven banking

• Budget 2024 proposes to provide $1 million in 2024-2025 for FCAC to support preparation for its new responsibilities and to begin development of a consumer awareness campaign. FCAC will transition to a full cost-recovery basis once the framework is in place.

On next steps for consumer-driven banking

• The government introduced the first of two pieces of legislation to implement the Consumer-Driven Banking Framework (covering governance, scope, and criteria and process for the technical standard) in the Budget Implementation Act, 2024, with the remaining legislation to follow in fall 2024.
• FCAC is working closely with the Department of Finance and industry to begin preparation and planning for its new responsibilities.
• These preparations will support a consumer-driven banking framework guided by three objectives:
  1. safety and soundness,
  2. protecting financial well-being, and economic growth; and
  3. international competitiveness.
• The Department of Finance and FCAC will continue to engage with industry, federal regulators, federal agencies, provincial and territorial governments, and other stakeholders as the Consumer-Driven Banking Framework and associated legislation is advanced.

On FCAC’s open banking public opinion research (POR)

• FCAC’s policy and research functions have already made important contributions to the development of the Consumer-Driven Banking Framework. For example, FCAC conducted public opinion research in June 2023 into Canadians’ awareness of and expectations for open banking.
• This public opinion research shows that Canadians’ knowledge and understanding of open banking is low.
• The research also shows that that strong and consistent consumer protections and consumer education would make consumers more likely to use open banking.
• Key findings from our public opinion research on open banking:
  • Finding 1: Canadians assume that the protections are the same when using a fintech or a bank app. Only 18% of respondents knew that protections are different when using services offered by fintechs versus banks
  • Finding 2: Most Canadians (over 80%) would not use, or would stop using, fintech product and services if they were not protected against theft, fraud, or accidental loss.
  • Finding 3: Few Canadians (just 9%) have heard of open banking. Of those who have heard of it, fewer still understand it.

Q&As

1. What progress has FCAC made on the Consumer-Driven Banking Framework since Budget 2024 was announced?

• We are currently working with the Department of Finance on a Treasury Board submission to access the $1 million earmarked for FCAC in Budget 2024.
• Over the coming months, a primary focus will be working with Finance on a plan to engage with industry and a broad range of stakeholders.
• These engagements will inform the creation of a Consumer-Driven Banking Framework that is guided by three objectives:
  1. safety and soundness,
  2. protecting the financial well-being of Canadians, and
  3. advancing economic growth and international competitiveness.

2. Can you update us on the new Senior Deputy Commissioner that will lead FCAC’s consumer-driven banking efforts?

• FCAC is working to define the roles and responsibilities of this new position.
• We are also looking at the structure and supports that will be needed to enable this important work.
• The candidate search will begin once the role and structure are clearly defined.

3. When do you expect the consumer awareness campaign on consumer-driven banking to launch?

• It will be important to support the implementation of Canada’s Consumer-Driven Banking Framework by raising awareness.
• Open banking is a complex concept, and raising awareness among Canadians will be key to its success. FCAC updates its information for consumers on this topic on Canada.ca regularly, and will continue to do so as the Framework is implemented.
• As a starting point, FCAC will be reviewing and assessing what other international jurisdictions have done to build consumer awareness as we prepare to plan a campaign strategy appropriate for the Canadian context.
• We will also analyze FCAC’s public opinion research data to better understand the diverse needs of the Canadian population in order to reach audience segments with the right information at the right time.
• An effective campaign will need to be phased and multi-year. For example, we would anticipate:
  • an initial phase to raise general awareness
  • a more comprehensive campaign once open banking is widely available and there is more information to communicate to help Canadians understand how they might benefit from Canada’s Consumer-Driven Banking system
  • finally, sustained communications efforts would be adjusted based on campaign evaluation results

Examples to support “diverse needs” of Canadians from OB POR data

• FCAC’s public opinion research indicated the following groups have a higher interest in open banking than other survey respondents:
  • recent immigrants,
  • people aged 18-34 years,
  • men, and
  • those with household incomes of $60,000 or more
• FCAC’s research also indicated some groups are less likely to have heard of open banking than other survey respondents:
  • Seniors,
  • francophones,
  • lower-income respondents, and
  • women

4. What will be the scope of the new Consumer-Driven Banking Framework?

• The government will adopt a phased approach to the 3 elements of scope: participants, breadth of data sharing, and functionality. This will be an iterative process that may see the Framework evolve significantly over time.
• In the initial phase, participants will be required to share data at the consumer’s request related to chequing and savings accounts, investment products available through their online portals, and lending products, such as credit cards, lines of credit, and mortgages.
• At a later date, the government may consider an expansion of the scope to include additional data, entities, entry processes (e.g., tiered accreditation), and functionalities (such as the ability to initiate payments).

5. How will consumers benefit from the new Consumer-Driven Banking Framework?

• Consumer-driven banking can play an important role in the future of the Canadian economy and offers various benefits for consumers.
• When it becomes available, consumer-driven banking will increase consumer choice and has the potential to improve financial outcomes for Canadians.
• It can offer solutions to help give Canadians greater control over their financial data and improve how they manage finances.
• Benefits for consumers may include, for instance:
  • access to a wider range of useful, competitive and consumer-friendly financial products and services
  • real-time access to all financial accounts, products and services in one place
  • access to personalized tools and products to help improve financial health. Examples include financial product comparison tools and budgeting tools
  • demonstrating creditworthiness more easily to loan providers by having all the required information in one place

6. Aren’t some Canadians already using fintech apps to manage their finances? [screen scraping]

• There's currently no secure system in Canada to safely share financial data from your bank account with fintechs other than your bank.
• The Consumer-Driven Banking Framework will make it safer and more secure for Canadians to share their financial information and access new financial tools.
• Currently, some fintech apps use “screen scraping” which requires users to provide their online banking username and password to access their financial data.
• The apps use this information to automatically log into bank accounts. They then transfer customer data to an external database that supports their products and services.
• An estimated nine million Canadians currently share their financial data by providing confidential banking credentials to service providers.
• Screen-scraping, raises security, liability, and privacy risks to consumers and the financial system.
• For example, if a customer provides their online banking username and password to another party, such as a fintech app, they may lose the protection their bank offers against unauthorized transactions.
• This means the consumer may be responsible for any:
  • losses due to unauthorized transactions
  • changes to your financial products and services

7. When can we expect the Consumer-Driven Banking Framework to be available in Canada?

• The coming-into-force date for legislation will be set by order of the Governor in Council.
• Bill C-69 introduces legislation to implement key components of the Consumer-Driven Banking Framework, including a new act – the Consumer-Driven Banking Act – and amendments to the Financial Consumer Agency of Canada Act.
• These legislative updates will establish the foundational elements of the Framework, including governance, scope, and criteria and process for the technical standard.
• The government intends to introduce remaining elements of the Framework in legislation this fall.

8. Why has Canada been so late in moving forward with open banking, especially given the risks to consumers? How does Canada’s progress compare to other jurisdictions?

• It was important for the Government of Canada to learn from other jurisdictions and to consult with the industry and other stakeholders before moving forward with the introduction of the consumer-driven banking framework.
• Only a handful of jurisdictions (e.g., UK, Australia and Brazil) have established open banking frameworks and each have taken different approaches. The Canadian framework will be similar to the Australian model, but adapted to our context.
• As announced in Budget 2024, the Government will be moving forward with this framework which will allow the secure sharing of financial information between financial institutions and other entities accredited to be participants in the framework.

9. The Advisory Committee for open banking suggested to “establish an organization at arms-length from government to implement and manage the open banking system with stakeholders.” Is FCAC the right choice to regulate this new space?

• Budget 2024 announced that FCAC will be mandated to oversee, administer, and enforce Canada’s Consumer-Driven Banking Framework.
• FCAC welcomes its future role in overseeing consumer-driven banking. As a leader and innovator in financial consumer protection, FCAC is well-placed to take on this new responsibility.
• Our policy and research functions have already made important contributions to the development of the Consumer-Driven Banking Framework.
• One example is public opinion research we conducted into Canadians’ awareness of and expectations for consumer-driven banking.
• Naming the FCAC to oversee consumer-driven banking is aligned with other jurisdictions and is in keeping with the Agency’s existing market conduct and financial education mandate.

10. How will the Consumer-Driven Banking Framework address jurisdictional issues? Will provincially regulated companies be forced to also comply with the CDB Framework?

• In the initial phase, the government will mandate participation for banks that meet a specified threshold for retail volume. This threshold will scope-in Canada’s largest retail banks.
• The remaining federally regulated financial institutions, as well as credit unions, Crown corporations acting as banks, and other entities seeking accreditation, will be provided the ability to opt-in to the Framework.
• All participants will be subject to the Consumer-Driven Banking Framework and FCAC supervision.
• To facilitate oversight of provincial entities, while respecting their jurisdiction, the governance model will be structured in a manner that allows for provincial credit unions and Crown corporations that act as banks to “opt-in” to governance, supervision, and participation.
• However, provincial credit unions and Crown corporations that act as banks that opt-in to the Consumer-Driven Banking Framework would not be subjected to FCAC’s oversight of market conduct requirements that are outside of the CDB framework.
• Provinces and territories retain the authority to impose their own requirements on entities subject to their jurisdiction.
• All entities entering the Framework will also be required to demonstrate adherence to technical and security requirements.