Download PDF here : Open Banking Policy Lab Resource Library
Further Reading : Report on Findings and Resolutions

General Information

Open Banking Project

AUTHOR: Open Banking Project
LINK
The Open Banking Project is the leading Open Source API and App Store for banks.  Open Bank Project’s open source API technology and surrounding ecosystem of tools – together with a vibrant fintech developer community – helps banks rapidly engage with the next generation innovators safely and securely.

Open Banking

AUTHOR: Open Banking Limited
LINK
Open Banking puts the consumer in control of their data.  It is a secure way for consumers to interact with financial services and products with regulated apps.  Open Banking leads to more choices, better products, and better prices.

Open Banking Summit April 2019 London

AUTHOR: Event Creation Network
LINK
Open Banking summit to be held in London in 2019.  Key topics include the debate over future regulations for a transformed banking industry. Successful bank/fintech partnerships building market share and offering targeted services to new customers. Risk mitigation strategies for data protection, privacy, and liability concerns. Encouraging digital engagement and loyalty through an improved customer journey. Establishing an implementation plan to redesign existing legacy systems.  Adopting a cross-industry and cross-border strategy in an expanding market. Embracing agile internal operations to comply and respond to new opportunities quickly.

What is Open Banking and PSD2? WIRED Explains

AUTHOR: Rowland Manthorpe
LINK
In January 2018, the UK forced its nine biggest banks to release their data in a secure, standardized form, so that it can be shared between authorized organizations online.  Open banking permits the transfer of data to third parties, allowing for more diverse and less expensive services to customers.  Open Banking attempts to correct some major downfalls of the current banking systems in the UK.  Customers complain that they are currently paying high fees, not getting enough interest, and spending too much for an overdraft.  Open Banking will attempt to raise competition and in turn lower prices for customers.

The Banks’ View on Open Banking

AUTHOR: Chris Skinner
LINK
This blog post outlines how Open Banking should start.  The author believes it should be app based – banks should begin shifting their services onto an app to facilitate consumer to bank communications.  Skinner suggests that Open Banking must start with consumers at the forefront of the ecosystem.

What is Open Banking? What does it mean for banks, fintech, startups, and consumers?

AUTHOR: Scott Carey
LINK
2018 marks the beginning of Open Banking and the test for the technology used. The UK has not set any targets to measure the changes caused by Open Banking or how much consumers are saving through the introduction of Open Banking.

Open Banking: The Money revolution nobody knows about

AUTHOR: Felicity Hannah
LINK
Open Banking will mean that bank customers can allow banks to share their data with pre-approved third parties. This will help customers understand their spending habits and access financial services that best address their needs.  There are quite a lot of critiques of Open Banking including “how will open banking address fraudsters? How can we ensure that customers are educated and understand what they are consenting too?”

Nesta’s ‘Open Up’ challenge gives real data to Open Banking projects. The Open Banking Hub

AUTHOR: Open Banking Hub – GoCardless
LINK
Nesta is creating a competition to encourage tech companies to develop small business cases around Open Banking.  To accelerate the ‘opening’ up of Open Banking “[t]he regulator has managed to stay away from being heavy-handed and prescriptive about what the standard should be — but it’s a good example of an enlightened regulation that will be good for competition and innovation.”

RBC Launches data sharing portal for app developers in a step towards Open Banking

AUTHOR: The Canadian Press
LINK
RBC has opened a select part of their data to third-party developers to attempt to foster innovation and create new tools for customers.  The approved third parties will be allowed to build test banking-related applications.  RBC is trying to move towards Open Banking; it plans to launch new digital platforms later in the year.

Canadian Club Toronto – Speech

AUTHOR: Stephen S. Poloz
LINK
Speech by Bank of Canada Governor: Stephen S. Poloz on fintech and Open Banking.

Open Banking – New Data sharing and payment options

AUTHOR: Barclays Bank UK PLC
LINK
An insight into what banks, such as Barclay’s, are looking to do: “We’ll be launching new services using Open Banking, designed to make your life easier and to help you make the most of your finances. In the meantime, you can share your data and make payments from your current account via TPPs approved by the Financial Conduct Authority (FCA).  It will also strive to handle the data securely and educate consumers on what they are sharing.”

Open for Business: Accenture Strategy

AUTHORS: De Jong B, Little M, Gagliardi.
LINK
Banks are at risk if they do not address Open Banking.  They could miss out on platform opportunities and fail to meet customer demands.  Banks need to restructure to address Open Banking, including developing digital faces to their organization.  For example, there could be a traditional branch and a digital one.  In the digital section, the banks would have to include APIs, developers, and create relationships with third-party apps and devices.

Challenges of Open Banking

Open Banking: Implications and Risks

AUTHOR: Financer Worldwide Magazine
LINK
This article outlines some key highlights and benefits of Open Banking.  It also describes some of roadblocks that financial institutions will have to address, including identity verification, ongoing consent, hackers, and regulators.

Coping with the challenge of Open Banking

AUTHOR: Swinton S, Roma E.
LINK
Banks will face some challenges with the rise of Open Banking.  Firstly, they run the risk of losing high-value costumers to more competitive banks as the Open Banking environment allows data to be shared, giving the customer the best option.  Aggregators might also take over the entire relationship between the bank and the customer.  Banks will have to take active steps to make the consumer the centre of the relationship.

Open up Banking Data. A Boon or Looks Scary

AUTHOR: Vijay Kumar Vaandanapu
LINK
This article outlines benefits and challenges of Open Banking.  Regulators are granted a lot of power with respect to what data is shared or not. The line is drawn in a grey area, leaving regulators to decide.  The regulators are also left to decide how to penalize breaches or lapse in data sharing.  Banks do not believe Open Banking will be a threat to them and are ready to use it to their advantage.

Open Banking – I think I’ll keep my door shut

AUTHOR: Patrick Collison
LINK
This blog outlines some flaws with Open Banking.  For instance, how to deal with fraudsters and the issues with continuing consent.  The article brings up the point of copycat websites which could pose as third-party developers, and misinformed customers could share data to fraudsters.

‘Open Banking’: Radical shake-up, or a threat to your private data?

AUTHOR: Shane Hickey
LINK
The article outlines the benefits of Open Banking but also highlights some of its shortcomings. For instance, consumers need to truly understand how to put safeguards in place. Consumers need to understand that they can sometimes find themselves in a complicated chain of providers.  Open Banking does not guarantee that third parties are truly offering the cheapest financial solution.

APIs (Application Programming Interfaces)

Data Sharif and Open Banking

AUTHORS: Brodsky L, Oakes L
LINK
In the coming years, APIs will be used to enhance the delivery of financial services for retail and business customers.  Open banking tries to benefit customers while also fostering innovation and new areas of competition between banks and nonbanks.  It is predicted that Open Banking will also create a new financial ecosystem, in which banks will take on a different role.

Open Banking APIs are open for business

AUTHOR: Carlo Marcoli
LINK
This article gives a more concrete definition of Open Banking.  It is defined as “[b]anking customers are empowered as the owners of their financial data.  Banking products are transparent and easy to compare.  Multiple parties work together to create new value chains to produce better products and services.”

Regulation

PSD2 and Open Banking – Using regulation to Kick-Start the transformation of Banking.

AUTHOR: Rana S, Duncan A, Peers R, Kohli A, Phelps D
LINK
The goals of PSD2 and UK’s initiative on Open Banking are to create more competition and to increase efficiency.  These two frameworks can create new business models and revenue streams. Technologies will be used to enhance customer experience.  Through the use of APIs, customers will be at the forefront of the banking ecosystems.

The regulator of tomorrow: Rulemaking and enforcement in an era of exponential change

AUTHORS: Shah. S, Brody R, Olson N.
LINK
Regulators have to keep up with innovation and rapid technological changes.  The Deloitte report suggests that: “by aligning technology, strategies and processes, and talent, regulators have the opportunity to become the regulator of tomorrow.”

Digital Disruptor: The legal challenges of ‘Open Banking’

AUTHORS: Bauer S, Ahmad I
LINK
Financial institutions are major data collectors but typically do not share that data.  However, with Open Banking, banks will  gain incentives to open up the data. This opening up will make different financial service provides better equipped to analyze data and increase innovation.

FinTechs

Competition in the digital age: How to tame the tech giants

AUTHOR: The Economist
LINK
With the rise of the digital age, tech giants have increased the size and scope of their activities.  Personal data is a currency, and tech giants use that information in return for their products.  The article suggests ways to regulate how tech giants use personal data and give people more control of their data.  This would, in turn, tame the tech giants without minimizing their progress.  It would also improve competition between tech giants and would allow more room for smaller tech companies.

What Facebook’s downfall will mean for the future of fintech

AUTHOR: Matthew Elliot
LINK
This article outlines some of the issues fintechs had in regards to privacy breaches after the exposé on Cambridge Analytica.  Fintechs will have to adapt to new privacy regulations and consent-based mechanisms. Fintechs and financial institutions will have to be mindful of how they handle data going forward.

Bank of Canada warns of threat from Big Data.

AUTHOR: Barrie McKenna
LINK
McKenna argues that there is too much market and pricing power in the hands of a small number of companies which raises the concern of monopolistic behaviour.  This article raises the concern of massive amounts of data falling into the hands of very powerful companies.  The Competition Bureau of Canada has issued a draft bulletin to indicate that regulators need to find a balance between addressing the harmful effects of big data on competition and consumers against anything that could stifle innovation.

Beyond FinTech: A Pragmatic Assessment of Disruptive Potential in Financial Services

AUTHORS: McWaters R. J, Galaski R
LINK
When implementing Open Banking it will be important to continuously evolve technological infrastructure; it will not be sufficient to implement a non-evolving infrastructure.  Public and Private sectors will have to coordinate.   Financial institutions will have to adapt quickly to regulatory changes and infrastructure technologies.

International Experience

United Kingdom

Retail Banking Market Investigation

AUTHORS: Alasdair Smith (Chair of Group), Hoehn T, Marsden P, May J, Smith E. and Andrea Coscelli
LINK
Open Banking increases rivalry between large banks.  Open Banking has the power to make the journey for customers to find adequate financial services more enjoyable.  Open Banking would encourage new business models and develop new financial specific technologies.  This document dates from before the implementation of Open Banking in the UK.

Data Sharing and Open Banking for Banks: A report for HM Treasury and Cabinet Office.

AUTHORS: Open Data Institute and Fingleton Associates
LINK
Competition between banks in the United Kingdom would improve through greater access to data and promote access to data with the help of technologies.  APIs will help with the transfer of information without requiring the assistance of a human.  Applying APIs through the entire financial system would be optimal to share and use consumer data.

Open Banking: How to flourish in an uncertain future

AUTHOR: Deloitte
LINK
This article makes the point that even if banks do not adopt full Open Banking modules, they have to align themselves with a more digital mindset.  Consumers would be able to access a wide range of services and third-party apps through one simple access.  This process would also push Open Banking players to be very competitive.

Open Banking, Open Risk? Managing financial crime in a disputed world

AUTHOR: Deloitte
LINK
This article outlines the importance of combatting financial crime in Open Banking.  With the rise of Open Banking, institutions will have to be mindful of how they protect people and do not create a platform for financial crimes.  It will be important to understand who would be held accountable and how to foster an environment so that financial institutions collaborate when financial crimes arise.

Open Banking will affect every single one of us.  But what is it? And could it help you save money?

AUTHOR: Hannah Baker
LINK
Open Banking in the United Kingdom is heavily regulated and legislated. Third parties must be insured to make sure that consumers are fully protected.  People get greater access to their money and will benefit from lower costs and higher benefits as banks will have to become more competitive.  As of now, people are not educated enough on Open Banking, and it will take time for people to understand how Open Banking works and how it can benefit them.

European Union

Impact assessment for revised Payment Services Directive and Interchange Fee Regulation

AUTHOR: European Union
LINK
For the EU, it is important to develop a framework that would work for all member states.  The internet permits citizens of France to buy German online products.  The EU (at the time of this report) was developing the PSD2 framework.  The EU was trying to move towards a more innovative framework, rather than paying with a credit card online.  It believes Open Banking would lead to better competition, more choices for consumers, increased innovation, more security, and trust with online payment systems.

Open Banking: advancing Customer centricity, Analysis and Overview. Open Banking working group

AUTHOR: Euro Banking Association
LINK
Open Banking is an innovative way for banks to respond to putting the consumer first.  The EBA outlines the following: “Recent regulation has accelerated the move towards a customer-centric approach in the financial industry, notably the PSD2 and in particular the provisions regarding ‘Access to Account’ (‘XS2A’)”. The EBA also discusses how it is important not to adopt the ‘Do-Nothing’ approach in regards to the digital age.

Understanding the business relevance of Open APIs and Open Banking for banks, information paper.

AUTHOR: European Banking Association
LINK
APIs are an important factor of Open Banking; giant tech companies would not have grown as much in the past couple of years if it hadn’t been for APIs. Banks and financial institutions are moving towards integrating APIs and Open Banking platforms to increase competition and move towards services beyond simple online payment.

PSDE: Taking advantage of Open Banking disruption

AUTHORS: Botta A, Digiacomo N, Höll R, Oakes L.
LINK
The PSD2 structure can be summarized into three pillars. The first pillar addresses transparency, as in stronger consumer rights as well as stronger standards for financial institutions as well as more openness in pricing.  The second pillar tackles security and how users of Open Banking can securely log in to Open Banking services.  Finally, the third pillar addresses technological standards, in other words, allowing PSP to connect with their systems to start the financial transaction.

Australia

Review into Open Banking: giving customers choice, convenience and confidence.

AUTHOR: Australian Government
LINK
This is a review of the Open Banking legislation that the Government of Australia has introduced.  It sets out a series of recommendations and propositions.  Since the review, Australia introduced a consumer data act which the review will inform on how to integrate into Open Banking. The review outlines that Open Banking is and should remain customer based.  It should also aim to innovate and encourage competition.  Open Banking needs to be regulated and monitored through set standards.  It is imperative that Open Banking provide safeguards to customers.  It must ensure privacy and security through the process, and most importantly it must tackle the issue of accountability.  APIs need to be built with standards and used with regulation.

Australian Competition and Consumer Commissions submission. Productivity Commission Inquiry into Competition in the Australian Financial System

AUTHOR: Australian Government
LINK
The Productivity Commission encourages the implementation of Open Banking to foster a more competitive setting for banks.  This would lower barriers to entry for smaller players and new entrants, making it easier for them to compete.  It would make it easier for consumers to switch between financial institutions.

Singapore

Singapore Favors ‘Organic’ Policy in Move Toward Open Banking

AUTHORS: Chanjaroen C, Amin H
LINK
Singapore is not planning on forcing Open Banking.  They will try not to have regulators imposing actions and want to move towards Open Banking naturally.  Banks are favorable to Open Banking but want to come up with guidelines to ensure ethical use of data.  They are striving to put the consumer first and reinforce safeguarding mechanisms.

Hong Kong

HKMA. Consultation Paper on Open API framework for the Hong Kong Banking Sector

AUTHOR: Hong Kong Monetary Authority
LINK
The way forward with Open Banking in Hong Kong, suggested by the consultation paper, is as follows: “[t]he Open API ecosystem is evolving and this Open API framework is only a directional and initial guide to help the commencement of the building of the underlying fabric. The HKMA intends to work with the industry to create a sustainable ecosystem and to ensure the adoption by banks and the development of innovative products to meet the needs of customers.”

A summary of the new Hong Kong Open API Framework, and how it compares with PSD2

AUTHOR: Hakan Eroglu
LINK
Hong Kong’s Monetary Authority has developed an Open API framework which outlines numerous goals.  For instance, it wants to increase Hong Kong’s banking competitiveness, and generate opportunities to reach markets that were not used before.  They also recommend standards and regulations for open APIs.  There are distinct differences between the Hong Kong framework and PSD2.

Canada

Issues in Bringing Canadian Fintech to the International Stage

AUTHORS: Hinton J.W, Lombardi D, Wajda J
LINK
This report calls for the government to act on the development of fintechs. Policymakers will have to juggle between developing the fintech industry at home and compete with the growing global market.  The report recommends Canada look at open data and payment system access as well as international regulatory agreements.

Rural Canada is underserved by financial services: Why post offices need to offer banking services.

AUTHORS: The Canadian Postmasters and Assistants Association & Anderson Consulting
LINK
Currently, rural Canada does not have access to adequate financial services (meaning that they do not have access to banks or credit unions), have to travel long distances to institutions that are often open for a very limited amount of time.  This report suggests postal banking as a solution to this issue as all rural communities have easier access to the Post Office.

Will Canada get its own version of PSD2?

AUTHOR: Phil Siarri
LINK
Canada has not set legislation to implement Open Banking.  However, the Canadian financial sector is looking at the PSD2 system and looking at how they can learn from that experience.  In Canada, we currently have companies who support the Open Banking movement, but there are no concrete plans at the moment to implement it.

Interview with Yves-Gabriel Leboeuf

AUTHOR: Phil Siarri
LINK
Interview with Phil Siarri and Yves-Gabriel Leboeuf.  Mr. Lebouef prediction is that some banks might take Open Banking initiatives before regulators legislate or take action.

Ranking Canada’s big 5 on fintech adoption

AUTHOR: Jake MacDonnell
LINK
This article outlines the digital changes that big banks in Canada are currently adopting.   First, the big banks are focused on developing digital strategies.  They are also looking at retail payments to expand consumer purchasing power.  Additionally, the big banks are looking at digital payment systems but are unsure how popular this system would be.

Big data and innovation: key themes for competition policy in Canada

AUTHOR: Competition Bureau of Canada
LINK
The report looks at how existing Canadian competition law applies to the emergence of Big Data. It concludes that firms that control and exploit data can raise new challenges but there is little evidence to suggest a new approach is needed. The fundamentals of competition analysis (market definition, market power, competitive effects) continue to guide enforcement and support striking a balance between taking steps to prevent behaviour that harms competition and over-enforcement that chills innovation and dynamic competition.

Regulating Disruption: Governing in an era of rapid technological change

AUTHORS: Johal S, Urban M.C.
LINK
One of the recommendations outlined here to nurture a space to drive innovation is to lower certain regulatory barriers.  Regulations are often huge burdens that stifle innovation.  Rapid innovation can present both benefits and challenges, and it is up to the private sector to develop a way to balance the interest of both sides.  Regulations will be important in a time of rapid innovation, especially in competitiveness and prosperity.

United States of America

Why do most U.S. banks shut the door on Open Banking’?

AUTHOR: Penny Crosman
LINK
This article outlines why some banks are not considering Open Banking.  The first argument against Open Banking is around self-preservation.  Open Banking leads to increased competition between big banks which means lower prices for consumers.  Second, big banks have zero incentive to lower barriers to let startups and fintechs in and disrupt the current ecosystem.

Comment: As app-based ‘Open Banking’ hits UK, USA is likely to follow suit

AUTHOR: Ben Lovejoy
LINK
The author suggests that once benefits of Open Banking are better known to the US, they will start taking a serious look at how it can be implemented in Canada.  Open Banking is still largely unknown, and banks do not have the interest to change the current system as they will most likely be losing customers.
Download PDF here : Open Banking Policy Lab Resource Library
Further Reading : Report on Findings and Resolutions

Open Banking

Report on Findings and Resolutions

Download PDF here : Open Banking Report on Findings and Resolutions
Further Reading: The Open Banking Resource Library

Executive Summary

On May 7th, Canada 2020 convened a five-hour policy lab on Open Banking – an idea proposed in Budget 2018 by Finance Minister Bill Morneau. Open Banking has the potential to radically transform the banking sector by increasing consumers’ access to their financial data across platforms and institutions.
The Policy Lab brought together 41 stakeholders and experts from government, academia, and industry to share information and resources on the topic of Open Banking. The discussion was held in camera and participants collaboratively designed a set of resolutions. A lively discussion and debate took place to determine which of the resolutions had a broad consensus of support. For resolutions that lacked a broad consensus, Canada 2020 noted these as issues to resolve and summarized the debate that took place in the room.
At the end of this document, we have attached a backgrounder on Open Banking that describes the issue and details the state of Open Banking policy around the world.

Areas of Consensus

1.  At the end of the session; the attendees identified several broad areas of consensus, through a voting process

2. Consumers must provide informed consent before any data is shared and must have the ability to retract consent at any time.

3. An evolving financial services market may create new or enhanced risks, understanding that some of the risks are unknown; government, the private sector, and consumer advocates should collaboratively develop mechanisms to mitigate and reduce risks.

4. Rules around the sharing of data should ensure that the data shared is proportionate to the stated use.

5. Common standards, including API standards, must be created to ensure interoperability, avoid fragmentation and drive safe adoption. Those standards should be developed by public and private sectors collaboratively.

6. Technical standards around authentication and data sharing should comply with ISO and global standards, as closely as possible, to match rules in other jurisdictions since the issues are universal.

7. Before rules and standards are put in place, regulators must consider the impact they will have on inclusive innovation.

8. When designing rules and standards, ethical considerations need to be taken into account on how data can be used.

9. A well-designed system of Open Banking puts the consumer at the centre of their information through increased transparency and the introduction of new products that will lower costs, give consumers more options, and enhance global competitiveness and accelerate innovation.

10. The National Retail Payments oversight model should reflect the realities of Open Banking.

Issues to Resolve

During the session, participants created a number of resolutions that failed to receive broad consensus. We have reframed these resolutions as open-ended questions and summarized the debate that occurred in the room.

1. How can the scope and understanding of consent be developed?

There was consensus in the room that the consumer must be educated to understand what they are consenting to and the consequences of providing that consent. The devil is in the details, however. What knowledge does the user need to be considered educated? Who should provide that education? What responsibilities does the user have to become educated?

2. Should the consent process be standardized?

There was consensus in the room that terms and conditions must be clear, simple and not misleading. Furthermore, there was consensus that consent should be retractable at any time. There should also be a way to make sure that consent is sustained throughout the use of the consumer’s data.  In order words, the consumer must be at the centre of the process and it must be beneficial for them.  It should also be clear what the consumer is consenting to: is it the business model or the data transaction for the data to be shared with the third party. Where there was disagreement was on how standardized the consent process should be between apps. A standardized consent process would make it easier for the end user to know what they are consenting to, but standardization could stifle innovation.

3. Should a “white list” of authorized players that have met a required level of standards proportionate to the nature and size of the product or service be created?

An ‘authorised’ white list could be created by a regulator, which would hold a list of firms that are regulated and will set the rules and implement sanctions if these are not followed. There was considerable discussion in the room on what “problems” a white list would solve, and what the standards should be to be included in the white list. Defenders of the approach see it as an attempt to create a clear public facing list of these parties so that the fraud rates of fishing and spoofing attacks are reduced, by consumers and businesses being better able to identify legitimate firms. But a number of questions remained in the room. Would the white list take into account financial soundness of the company? How would it address privacy and security? Authorized players would need to adhere to privacy and security standards, but what are those standards? Who makes sure these are followed?

4. Should Canada consider consumer data rights (eg “open data” more broadly) where Open Banking is the first use-case?

There are complexities around what data and applications are in the scope of Open Baking.  Should Canada restrict Open Banking to payments, as in some other jurisdictions (noting that these jurisdictions may add use cases in the future, with Australia already publishing a time-table for delivery)?   With Open Banking, Canada could use the opportunity to develop an Open Data Consumer Rights Act, where Open Banking would be its first use-case. There was considerable discussion in the room on how narrowly governments should be defining Open Banking. Should the government rather be considering Open Data policy more broadly, where Open Banking is simply one portion of a larger Open Data discussion?

Backgrounder on Open Banking

What is Open Banking?

There are a number of competing definitions and descriptions of Open Banking, but all of them revolve around a common theme: giving consumers access to the data generated by their financial activities. In a report commissioned by Barclays, Faith Reynolds describes Open Banking in the context of the UK’s Competition and Market Authority’s (CMA’s) ‘Open Banking remedy’ and the European Payment Services Directive 2 (PSD2) as follows:

Open Banking requires firms to:

1.  Make it possible for people to share their financial transactional data far more easily with third parties online.

2. Allow third parties to initiate payments directly from a person’s account as a bank transfer as an alternative to credit or debit card payments.

3. Make public and openly share their product information and importantly, their customer satisfaction scores and separately other ‘service level indicators’.

As further described by Reynolds, Open Banking, through the use of Application Programme Interfaces (APIs) can facilitate the creation of new products and services and increase choice for consumers:

Open Banking has the power to revolutionise the way we manage our money, shop around and buy things. For SMEs, managing cashflow and receiving payments should be cheaper and easier.

Technologies like Application Programme Interfaces (APIs) have the potential to create new services delivered by existing players and new intermediaries, like Personal Finance Management platforms. They have the power to bring substantial benefits to consumers, aggregating their financial products in one place; providing new insight about spending patterns; making recommendations about saving money; automating parts of the decision-making process and even offering new ways to pay.

Open Banking could widen access to existing products, like credit, debt advice or financial advice. And bring new products to market from overseas or the UK, at the click of a button. Open Banking will make things simpler, quicker and more convenient.

The innovation that new technologies make possible is endless and over time could create new forms of value we can’t envisage today.

 The Opportunities 

Beyond the advantages specified by Ms. Reynolds, a big advantage of Open Banking is that it allows financial institutions to specialize in the specific segments of the supply chain, as detailed in a recent blog post by IBM:

A traditional retail bank has its own distribution channels (such as branches, contact centers, and digital channels). It also creates its own products and has its own back-office operations. The emergence of financial technology (fintech) and the push of regulators for more competition are disaggregating and open this closed value chain. In a world of open banking, participants can specialize in one or more sub-steps of the end-to-end process. They can focus on areas that have a clear competitive advantage and leverage the scale and efficiency that partnerships with other players enable.

Any industry disruption creates new value for consumers and new opportunities for non-incumbent companies, but also creates challenges and risks to both incumbent players and societies as a whole. As such, regulators need to be aware of those challenges.

The Challenges and Risks 

Open Banking and APIs can present many regulatory challenges. First, Open Banking is based on the sharing of information, as highly sensitive personal data is shared across many platforms, which raises some security and privacy concerns. For Canada, it will be important to consider national and international frameworks when implementing Open Banking. A key threat is security vulnerability which could undermine the entire ecosystem, along with high risks of cyberattacks. One possible solution is blockchain technology. However, blockchain comes with its own shortcomings.
Banks will have to adapt to the rapid change that our financial ecosystem is experiencing.
Financier WorldWide touches on compliance and Open Banking:

With government agencies and financial regulatory bodies proposing independent authority to oversee open banking standards, governance and compliance requirements, banks will have to immediately comply with GDPR and PSD2. Failure to accommodate GDPR and PSD2 regulations as part of the open banking framework may expose banks to the risk of financial or reputational loss.

Each jurisdiction must develop its own regulatory framework for dealing with these risks and challenges.

The Canadian Context 

The federal government’s 2018 budget calls for a review of Open Banking, citing both opportunities and risks around consumer privacy, data security, and financial stability.

Financial technology (fintech) is driving change in the financial sector, and has the potential to increase innovation and competition, providing Canadians with more affordable and useful services, and increasing financial inclusion as specific customers or markets (e.g. small and medium sized businesses) are better served.

Within this overall context, a number of international jurisdictions are implementing open banking platforms. At its core, open banking is about empowering consumers to share their financial data between their financial institution and other third party providers through secure data sharing platforms. This in turn enables financial service providers to offer more tailored products and services, on a more competitive and innovative basis. Open banking also has the potential to provide consumers with greater transparency on the products and services offered by financial institutions, thus allowing them to make more informed decisions, and makes it easier for consumers to move and manage their money.

Recognizing these potential benefits, the Government proposes to undertake a review of the merits of open banking in order to assess whether open banking would deliver positive results for Canadians with the highest regard for consumer privacy, data security and financial stability.

Despite the current lack of a regulatory framework, a handful of Canadian start-ups are operating in the Open Banking space, as described by Phil Siarri:

There are a few companies in Canada which took an interest in the open banking movement and are offering financial services APIs. Montreal-based Wealthica is one of them. Founded in 2015, it offers an API-powered investment aggregation platform (for the sake of transparency: I am a brand ambassador for the company). Wealthica allows users to consolidate their investment accounts and portfolios in one simple interface with various reporting functionalities. The company is embarking on an ambitious journey to $10B aggregated investments. Other Canadian startups that are part of such emergent ecosystem include Questrade and Flinks.

The ability of these start-ups to operate is hampered by the lack of a Canadian regulatory framework. Canada can look to other jurisdictions to obtain best practices in navigating these tensions.

The International Context 

Financier Worldwide outlines a few highlights of Open Banking in different jurisdictions:

The UK has taken the lead in open banking initiatives, in producing an open banking framework that could enable the open banking standard in the UK. This has also prompted the CMA to draft the recommendations in its final report released in 2016. According to the report, large banks are to adopt and maintain a common standard for open APIs, to address the lack of innovative and competitive products in the financial market.

In Europe, the Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR), which have been designed to regulate financial innovation, are driving Europe towards an open banking standard.

Other markets such as the US, Latin America and Asia have been experimenting with open banking in pockets and have expressed strong interest in pursuing technological advancements in the financial services industry.

Given that the pace and scope of open banking reform differs by jurisdiction, it is helpful to look at several different ones on an individual level.

Open Banking has been implemented in Australia since November 2017 and is already undertaking a review process.  Banks and large financial institutions have already announced initiatives to increase data sharing and expand services with Open Banking.
The European Union has been quick to adapt to change. The EU is looking at expanding Open Banking to functions beyond simple payments.  They strive to ensure consumer protection. Starting in May 2018 the EU will be implementing a new Data Protection initiative. This regulation creates a framework for consumers to control their data through consent mechanisms.
Singapore is attempting to implement a different type of regulatory framework, with a less aggressive and more organic approach. It is not planning on forcing regulations on financial institutions.  The Monetary Authority of Singapore will be working towards guidelines for ethical usages of data and artificial intelligence that would work for all players within the ecosystem.
For the UK, the new directive set out by the Competition and Markets Authority will force the country’s nine biggest banks to share customer data (with permission) to third parties.
Download PDF here : Open Banking Report on Findings and Resolutions
Further Reading: The Open Banking Resource Library