House Standing Committee on Finance (May 31, 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.
• This summer, FCAC and the Department of Finance will hold a series of engagement sessions in support of the development of the technical standard and common rules.
• These sessions will be with stakeholder groups such as banks, fintechs, provincial government representatives and regulators, other government departments and agencies, credit unions and broader civil society organizations.

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.
• This summer, FCAC and the Department of Finance will hold a series of engagement sessions in support of the development of the technical standard and common rules.
• These sessions will be with individual stakeholder groups such as banks, fintechs, provincial government representatives and regulators, other government departments and agencies, credit unions and broader civil society organizations.
• These engagements will inform the creation of a Consumer-Driven Banking Framework that is guided by by three objectives:
  • safety and soundness,
  • protecting the financial well-being of Canadians, and
  • 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. Jurisdictional questions: will provincially regulated companies be forced to comply with the federal CDB Framework? How will complaints handling be managed for provincially-regulated entities under the Framework?

• As per the Framework, the government will mandate participation for Canada’s largest retail banks, which are federally regulated.
• Other federally regulated financial institutions, credit unions, crown corporations acting as banks, and provincially regulated entities can opt-in.
• All participants will be subject to the Consumer-Driven Banking Framework and FCAC supervision.
• However, provincial entities that opt in would not be subjected to FCAC’s oversight of market conduct requirements that are outside of the CDB framework.
• This summer, FCAC and the Department of Finance will hold a series of engagement sessions with stakeholder groups including banks, fintechs, credit unions and provincial government regulators in support of the development of the technical standard and common rules.
• The complaints-handling process for open banking will be developed as part of this process, and FCAC looks forward to ongoing collaboration with these stakeholders.
• For questions further related to timing to introduce open banking and comparisons to other jurisdictions, the Department of Finance would be best placed to answer.

4. 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?

• FCAC welcomes its future role in overseeing, administer, and enforce 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 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.

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

• Open banking is a complex concept, and raising awareness among Canadians will be key to the success of Canada’s Consumer-Driven Banking Framework.
• 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 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

6. 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 online portals, and lending products such as credit cards, lines of credit and mortgages.
• Later, 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).

7. 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.
• One of the main benefits a consumer-driven banking system offers to consumers is the safe and secure way in which they can access financial services. While these types of third-party financial services are available today, they rely on data-sharing methods – such as screen scraping – that carry some risk to consumers.
• When it becomes available, consumer-driven banking will increase consumer choice and has the potential to improve financial outcomes for Canadians by giving them greater control over their financial data and improve how they manage finances.
• Benefits for consumers may include, for instance:
  • real-time access to all financial accounts, products and services in one place
  • access to personalized tools and products to help improve financial health
  • demonstrating creditworthiness more easily to loan providers by having all the required information in one place
• For vulnerable groups in particular, consumer-driven banking can help provide a more complete picture of their financial situation (e.g., in comparison to credit bureau reporting) that in turn can help improve financial outcomes, for example by qualifying vulnerable financial consumers for appropriate lending products.

8. How will FCAC encourage vulnerable populations to benefit from open banking?

• The National Financial Literacy Strategy’s vision is for a Canada where everyone can build financial resilience in an increasingly digital world. The strategy mobilizes stakeholders from across the financial ecosystem to:
  • reduce barriers, by supporting increased digital access and digital literacy, and building and providing for diverse needs
  • and to catalyze action by, for example using behavioural design to simplify financial decisions, and enhancing access to trustworthy and affordable financial help.
• Consumer-driven banking can offer opportunities for financially vulnerable Canadians to help them make better-informed decisions and build financial resilience.
• FCAC’s public opinion research indicates that some Canadians are less likely to have heard of open banking than others.
• Analysis of this data will inform FCAC’s public awareness strategy. We will use it to develop targeted messages to reach diverse audience segments using effective channels, including collaboration with partners and stakeholders from across the financial literacy ecosystem.

9. How will consumers’ data and privacy be protected under open banking?

• Common rules on privacy, data protection and liability
• Consumers consent to how their data is shared
• Technical standard

10. Canadians are already using fintech apps to manage their finances, so how will the Consumer-Driven Banking Framework be more secure?

• One of the main benefits a consumer-driven banking system offers to consumers is the safe and secure way in which they can access financial services. While these types of third-party financial services are available today, they rely on data-sharing methods – such as screen scraping – that carry some risk to consumers.
• Although there’s currently no secure system in Canada to safely share personal banking data with third-party fintech apps, an estimated 9 million Canadians currently share their financial data by providing confidential banking credentials to service providers. [from Dept. Finance policy framework for CDB]
• 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.
• Screen-scraping raises security, liability, and privacy risks to consumers and the financial system.
  • o For example, if a customer provides their online banking username and password to a third party, they may lose the protection their bank offers against unauthorized transactions.

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

• 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.
• This legislation will establish the foundational elements of Canada’s Consumer-Driven Banking Framework, including governance, scope, and criteria and process for the technical standard.
• The coming-into-force date(s) for the CDB Act and amendments to the FCAC Act will be set by order of the Governor in Council.
• The government intends to introduce remaining elements of the Framework in legislation this fall.

12. 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?

• FCAC’s policy and research functions made important contributions to the development of the Consumer-Driven Banking Framework.
• Budget 2024 announced that FCAC will be mandated to oversee, administer, and enforce Canada’s Consumer-Driven Banking Framework.
• For questions related to timing to introduce open banking and comparisons to other jurisdictions, the Department of Finance would be best placed to answer.

13. The term “derived data” appears in the Consumer-Driven Banking Act. What is “derived data”?

• Derived data is data about a consumer, product or service that has been enhanced by a participating entity to significantly increase its usefulness or commercial value.
• This type of data will be excluded and therefore cannot be shared as part of the CDB framework.