Submission by FDATA North America To the House of Commons Standing Committee on Industry and Technology (INDU) Regarding the Study of Bill C-27

by rebecca

October 31, 2023 – The Financial Data and Technology Association of North America (“FDATA North America”) is the leading trade association advocating for consumer-permissioned access to financial data in both Canada and the United States. Our members include firms with a variety of different business models that collectively provide more than six million Canadian consumers and small- and medium-enterprises (“SMEs”) with access to vital financial services and products. Utilizing the products, services, and tools, that FDATA North America’s members provide, Canadian consumers can, for example, access more competitive banking services, including more affordable credit, utilize more efficient payment options, and benefit from technology to better manage their finances and grow their wealth. Canadian small businesses across the country depend on FDATA North America member companies to manage their accounting and credit needs and more easily send and receive payments.

FDATA North America was founded in early 2018 by several financial technology firms whose technology-based products and services allow consumers and SMEs to improve their financial wellbeing. Regardless of their business model, each FDATA North America member’s product or service shares one fundamental and foundational requisite: the ability of a consumer or SME to actively permission access to some component of their own financial data that is held by financial services providers.

We are strong advocates of Canada’s implementation of an open finance regime, which was first outlined as a government priority in Budget 2018. The core idea of open finance is this: a Canadian consumer or SME should be able to safely and securely share access to their data held at one provider with another provider that offers a better financial product, service, or tool. Whether it’s a chequing, savings, business, brokerage, pension, mortgage, or auto loan account, or data held by a payroll or benefits provider, open finance is the straightforward notion that the customer should have the right to use that data for their own benefit. Once built, open finance in Canada will put consumers and SMEs in full control of their financial data, facilitating a more transparent and competitive Canadian financial services marketplace that provides safe and secure data portability. FDATA North America views the data portability right and data privacy framework included in Bill C-27 as fundamental cornerstones of this modernized approach to financial services.

Following the pandemic, a period of economic uncertainty and rising inflation, one thing is obvious: Consumers and entrepreneurs are demanding access to financial solutions in new and novel ways that better meet their needs. Digital financial services, typically offered by non-bank financial technology (“fintech”) companies can help meet those needs. In a 2022 survey of consumers in the U.S. and U.K., two-thirds said fintech helped them weather economic challenges.
Half of respondents said fintech helped them feel more in control of their finances. And nine in ten users saw benefits from using fintech tools.

A survey of Canadians commissioned last year by FDATA North America and Fintechs Canada found similar results. That data showed that half of Canadians feel stress with interacting with Canada’s existing financial services sector and that more than two-third of Canadians believe more competition in the financial services marketplace would lead to a greater choice in products and lower financial services fees. Ninety percent of Canadians indicated they found fintech products easy to use, with more than eighty percent reporting they paid lower fees to fintechs than to their
banks for similar services or products.

Open finance results in more choices and better experiences for consumers and SMEs, as banks and nonbanks compete aggressively to win over customers. Canadians deserve access to these alternatives, just like their neighbors in the U.S. and U.K.

As the committee has heard from other witnesses, Canada lags significantly behind virtually every other G-20 country with regard to open finance, data portability, and data privacy. The United Kingdom, Australia, New Zealand, Singapore, Japan, Brazil, the European Union and other jurisdictions have all enacted some version of government-led open finance under which consumers and SMEs have legally binding data access rights and data privacy protections afforded to them to access a more competitive and vibrant financial services marketplace.

In contrast, today, Canadian consumers and SMEs have no legal right to access or share access to their financial data. Unlike the overwhelming majority of other developed countries, in Canada, a consumer’s or SME’s bank is empowered to determine whether their customer may share elements of their data with a third-party provider of financial services to get a better deal, access a new product or tool, or avoid paying exorbitant fees. And, to the extent that a bank does allow its customers to share access to their financial data, there are generally onerous and, in some cases, restrictive terms dictating the limitations under which customers are able to do so.

While Canada has taken important steps towards a more open, consumer-directed finance (CDF) regime, significant work remains to reach implementation. Abraham Tachjian was appointed as Canada’s open finance lead in March 2022, and FDATA North America commends him for establishing working groups for some of the most crucial issues associated with the introduction of open finance in Canada.

Unfortunately, the efforts of these working groups have yet to come to fruition, as concrete progress towards implementation of open banking has stalled. The 18-month timeline the government had established is now out of reach, which should be a concern to Canadian policymakers, consumers and SMEs alike.

Earlier this month, the United States formally launched its own open finance regulatory regime with a Consumer Financial Protection Bureau (“CFPB”) rulemaking. Recognizing that incumbents in the financial services market would not on their own deliver a more competitive, customer-centric ecosystem for U.S. consumers and SMEs, the Director of the CFPB noted in announcing the U.S. rules that the CFPB’s open finance rule will “supercharge competition, improve financial products and services, and discourage junk fees.” Like Bill C-27, the CFPB rule would provide data portability rights to consumers and would require those firms that access, with their express consent, end users’ data to abide by strict data privacy and security provisions.

To advance its open finance regulations, the CFPB had an advantage in the United States that the Departments of Finance (“Finance Canada”) and Innovation, Science, and Economic Development (“ISED”) currently do not: strong statutory authority to do so. Finance Canada has been studying how to deliver open finance in Canada for the better part of five years. FDATA North America views enactment of Bill C-27 as a critical element of a transition from open finance ideation to implementation. Once consumer and SME data portability have been enshrined in law, ISED and
Finance Canada will have the statutory tools required to finally deliver open finance in Canada.

Consumers and SMEs in Canada are being left behind as the rest of the G-20 build and deploy open finance frameworks that facilitate competition, enable greater access to and inclusion within the financial services marketplace, and provide their citizens with appropriate data protections when utilizing a legally binding data portability right. The data portability and data privacy provisions included in Bill C-27 represent integrally important statutory tools that ISED and Finance Canada will need to help Canada catch up – and to foster a safer and more competitive
financial services sector for all Canadians.