THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, May 29, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET] to study the subject matter of those elements contained in Divisions 11, 13, 16, 17, 18, 19, 20, 33, 41 and 42 of Part 4, and in Subdivision A of Division 34 of Part 4 of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello to everyone in the room and welcome all of those watching online. This is a meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I serve as the chair of this committee. Before we begin, I have just a couple of housekeeping matters.
To all senators and participants here, please consult the papers on your desk regarding the audio issues. We’re asking that you use the black earpieces, not the grey ones, if there are any old ones still around, and keep them as far away from the microphone as you can. This is to help our interpreters, as they were dealing with a lot of feedback. Thanks for your cooperation.
We are going to begin our meeting, although many of our members are attending a simultaneous Finance Committee meeting next door. We have with us here today Senator Bellemare, Senator Deacon, Senator Marshall, Senator Massicotte, Senator Petten, Senator Ringuette, Senator Varone and Senator McNair. We will begin, and others will join us as we carry on.
Today, we continue our examination of the subject matter of those elements contained in Divisions 11, 13, 16, 17, 18, 19, 20, 33, 41 and 42 of Part 4, and in Subdivision A of Division 34 of Part 4 of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024. More specifically, we will examine Division 16, Part 4, during our meeting today. This division enacts the Consumer-Driven Banking Act, which establishes a consumer-driven framework for individuals and small businesses to safely and securely share their data with the participating entities of their choice. It also makes related amendments to the Financial Consumer Agency of Canada Act to establish the position of senior deputy commissioner for consumer-driven banking, who is responsible for consumer-driven banking matters, and to provide for, among other things, the supervision of participating entities. I’m sorry for all the bureaucratic language, but we are obliged by law to read that.
For our first panel today, we have the pleasure of welcoming witnesses from the Competition Bureau: Bradley Callaghan, Associate Deputy Commissioner, Policy, Planning, and Advocacy Directorate; and Anthony Durocher, Deputy Commissioner, Competition Promotion Branch. Welcome to you both. Thank you for being with us. You have an opening statement, Mr. Callaghan. Please go ahead.
Bradley Callaghan, Associate Deputy Commissioner, Policy, Planning, and Advocacy Directorate, Competition Bureau Canada: Good afternoon, Madam Chair and members of the committee. Thank you for the invitation to appear before you today. My name is Brad Callaghan. I am the Associate Deputy Commissioner of the Policy, Planning and Advocacy Directorate at the Competition Bureau of Canada. Joining me is my colleague, Anthony Durocher, who is Deputy Commissioner of the Competition Bureau’s Competition Promotion Branch.
[Translation]
The Competition Bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. We do this because competition drives lower prices and innovation while fuelling economic growth.
We administer and enforce the Competition Act by investigating and taking action to address anti-competitive business practices that harm consumers, competition, and our economy. These include price fixing, deceptive marketing and abuse of market power. We also review mergers to ensure they do not substantially harm competition. Finally, we advocate for pro-competitive government policies and regulations.
[English]
The Competition Bureau has long been active in promoting robust competition in the financial sector. In 2017, the bureau completed an in-depth market study on Technology-led Innovation in the Canadian Financial Services Sector, or fintech. We made 30 recommendations in this study, including that policy-makers embrace broad, open access to financial systems and data through informed consent.
Further, we have participated in several Government of Canada initiatives with respect to consumer-driven banking, including past submissions to government consultations on the merits of open banking, the Advisory Committee on Open Banking and competition in the financial sector more broadly. In each of these cases, the bureau encouraged the government to take steps toward implementing a consumer-driven banking framework in light of its potential for competition. It can boost competition and innovation by challenging established providers and enabling new service providers.
We are pleased to see Bill C-69’s proposed open-banking framework, which would benefit consumers and businesses alike, and we look forward to its implementation in Canada. The ability for consumers to choose and switch providers lies at the heart of the competitive process, and giving consumers this ability will help foster overall competition in the sector.
Before fielding your questions, I would note that the law requires the bureau to conduct our investigations in private and keep the information we have confidential. This obligation may prevent us from discussing certain past or current investigations.
Thank you again for the opportunity to appear today, and we look forward to discussing your questions.
The Chair: Thank you very much.
Senator Marshall: Right now, the bill just talks about the development of a framework. What would be your role in the development of the framework, and what would be your ongoing role once the open-banking system is up and running?
Mr. Callaghan: At the Competition Bureau, our role is really supportive. We are an independent agency, as we said, and the Department of Finance is the policy lead that is pushing forward the policy framework. The Financial Consumer Agency of Canada obviously is the new body that is going to be carrying forward the implementation and the enforcement.
Our role is really one of an advocate. We are a promoter of competition principles. As we have said in our submissions, in the past, we have made recommendations that we hope will inform that framework. Certainly, we’re encouraged by seeing a number of things that we have advocated for in the past represented in the framework that has been set out, but we are really here to support. The Department of Finance has certainly reached out to us in the past and on an ongoing basis just as needed to try to support them if there are questions from the perspective of an enforcement agency.
Senator Marshall: You’re not actively involved in the development of the framework, are you? You are more on the outside and then, if they need you, they’ll come to you. But you are not really that close to it? I’m just trying to get a handle on it.
Mr. Callaghan: I think that is a good characterization of it. I would say that the Department of Finance has not been closed or keeping us out in any way. In fact, because we have experience from our own market study and from investigations in this sector, they have asked for our advice as their process has moved along. They have been very open to views from the Competition Bureau, but we are not actively engaged in —
Senator Marshall: At this point in time, you don’t have any major concerns? It’s still early.
Mr. Callaghan: I certainly agree. It is early. As I say, we are encouraged to see the initiative moving forward. It is something that we have been calling for, for a long period of time, since we did our market study, which was 2017. We think it is a very important development for consumers. We’re glad to see it moving forward.
Senator Marshall: Thank you very much.
Senator C. Deacon: It is really great to see you both here. Thank you, Mr. Durocher and Mr. Callaghan, for being with us.
We have spoken a lot in the past when you have testified before us about the need for pro-competitive policies, pro-competitive legislation and pro-competitive regulation in this country. I’m a little concerned about a few sections of the proposed legislation that may not necessarily achieve that end, and I’ll ask maybe a couple of questions along this line.
One is the designation of the technical standard body, the group that will basically run the engine through which all the data will be transferring from banks to designated entities based on customer request. That technical standard right now, one of the leading ones that people talk about, has a U.S. board. The Canadian CEO reports to the U.S. board. It is run and controlled by U.S. banks. Canadian banks are at the table. Now, that’s not made-in-Canada, and that’s bank controlled.
In proposed section 8, the minister has the ability to choose criteria other than those listed. I think it is 8(2)(c). What would be your advice to the minister as to how to make sure that we had the choice of an engine, the body that is going to be running how the data is exchanged, so that it will be, in fact, pro-competitive?
Mr. Callaghan: The first thing we have said in past submissions is just to make sure that the body that is in charge would be independent. There are maybe a few things to unpack in there, but fundamentally what we have said is we would want to make sure that any decision-making body that is in charge of setting out a framework, accreditation, what is in the scope, et cetera, would not have any interest in the outcomes of those kinds of processes.
Senator C. Deacon: So that the organizations that make up the body do not have an interest in the outcomes?
Mr. Callaghan: Yes, exactly. There may be more to see in terms of who the actual players would be who make up the governance bodies but, in our past recommendations on the framework, that was our perspective that we took, yes.
Senator C. Deacon: Proposed section 12.1 talks about the advisory role of the FCAC and the advisory body to the minister of the implementation of consumer-driven banking, and it doesn’t talk about the need of the membership of that advisory body to be balanced, inclusive and making sure that those involved are not necessarily completely tied to the outcome. My concern there is that this is the first step towards open data. We don’t want to be limited to just people sharing banking data; we want to be able to move and have this as the first step. What would be your advice to the minister as it relates to the establishment of that advisory body that is going to be governing how this framework is implemented to make sure that it is, in fact, pro-competitive?
Mr. Callaghan: Ultimately, as you have said, senator and madam chair, independence obviously is key. A lot will obviously depend on the makeup of the body.
As you have noted, hopefully this is the first step to broader initiatives in terms of opening up data in our economy because it really holds a lot of potential for competition even beyond the financial sector. We have seen that in terms of the change from some of the terminology from opening banking to open finance. We know in other jurisdictions that they are considering even larger initiatives beyond that, I think because the control over data is so essential to competition in the digital economy, which is really our entire economy at this moment.
Certainly, we need to be careful about who controls the data and the role of incumbents who may currently have the vast amount of data. The ultimate goal of these kinds of initiatives is to try to open up some of that gatekeeping and enable a freer flow of that data because of the benefits that can flow from it: for consumers, more of an ability to switch their provider and ensure that their data is not held only by one, and from the perspective of businesses, to allow a much broader realm of competition to flourish so new competitors can come to the market and challenge some of those established players.
Senator C. Deacon: Thanks very much.
Senator Loffreda: I apologize that I didn’t hear your opening remarks, but we had our Deputy Prime Minister on the other side at our Finance Committee, and she was answering our questions. Thank you for being here.
We often talk in Canada about the lack of competition and productivity. Just as a general question before I get to a specific question on open banking, we’re the last country in the G7 to adopt open banking. Do you see competition improving through the measures that were adopted? It is only a framework, but going forward, do you see it being necessary? I always felt, coming from 35 years in the banking sector, that we had a lot of competition, especially with the credit unions, co-ops and what have you, who did not always have a profit motive going forward. Although many Canadians believe there is no competition in the banking sector, it is not true. Do you feel this is going to help?
Second, what would you have liked to have seen in the budget implementation act to improve competition and productivity? We talk a lot about productivity in this committee. What is missing? What could we look at going forward?
Mr. Callaghan: Thank you for the question.
To start with the first point about the importance of competition in this sector, our view is that this initiative of consumer-driven finance can help improve competition. We have found not only in the fintech market study that I mentioned but also in the merger reviews that this is a concentrated sector and that barriers to entry are high. The large players in this sector represent quite a big portion of the relevant markets that we look at.
For consumers, they tend to be sticky. There isn’t a lot of movement between providers. In that kind of context, there is no incentive on incumbents to be competing hard. We think an initiative like open banking can really accelerate the entry of new players coming into those markets and lower some of the barriers to entry, because it can make switching much easier for consumers.
The Chair: Basically, you are saying that if consumers have more choice, it’ll certainly force competition, but it does not necessarily bring more competitors in. It just means more competition between players.
Mr. Callaghan: No. In fact, Madam Chair, we would see this as actually enabling more new players to come to the market as well. A lot of this goes back to the fundamental role of data in the digital economy and the need for access to it. What we have found in our past work is that, for new players, fintechs and other companies who are looking to get into this space, the ability to access existing data is extremely important to build the network effects and the economies of scale needed to compete. We would expect new players to come online from this kind of a change.
The Chair: That makes sense. Thank you very much.
[Translation]
Senator Bellemare: Thank you for being here. I will ask my question in French, but please feel free to answer in the language of your choice.
For those listening, the subject of the open banking system is quite technical, given that Canada’s lags behind other countries. Could you give us a concrete example of what opportunities the open banking system could create, especially for people my age, who aren’t very technologically advanced?
In a context where open banking poses risks to personal data, can you tell us why the government chose to create a senior commissioner position rather than handing all responsibility over to the Bank of Canada? That’s my question. I’d like a concrete example, and I’d also like to know why these terms of reference were chosen, rather than going with the Bank of Canada.
Mr. Callaghan: Thank you very much for the question. I’ll answer in English, because the answer is somewhat technical.
[English]
One concrete example you could think of is what is known as an aggregation of financial services. If you think of the application you would use on your phone to view your bank account, what open banking might enable is to allow you to join in with that kind of information — information from other parts of your financial life, investments that you may have somewhere or a budgeting software that might allow you to incorporate other parts of your spending so that you have greater control over it. Obviously, that gives a lot of empowerment to the consumer and might also give you an ability to compare other applications or services that might be offered by other companies so that you are more able to switch.
On your second question, in terms of the actual choice of the body, that is not an area that we have studied closely. Obviously, concerns about privacy are important, and we all have an interest in guarding that important public interest with respect to financial information. I think that is common across all of the jurisdictions that have looked at this and have moved forward with open banking. Certainly, it is something that can be dealt with, and I’m sure the Minister of Finance is live to these concerns, but we are not directly involved in the choice of who is best placed to carry that out.
Senator Massicotte: Thank you to the two gentlemen for being with us.
I now better understand your strategies, because I was wondering why you are tying into consumer banking. You are saying that consumer banking is only there to satisfy the ultimate purpose, which is greater productivity or more competition, which I don’t mind.
What I am surprised by, though, is you are tying your horse to that gamble. You said earlier many regions now offer it. Can you assure us that all the regions you have examined would automatically increase competition with better consumer backing so that we get a better financial result and Canadians will buy into it?
Mr. Callaghan: Certainly, I think as a general principle, we can say quite confidently that an initiative like this will bring more competition. We know that a greater ability for consumers to compare offers, to take their data to another provider and a better ability to switch is going to lead to more competition. This is fundamental to the competitive process. If customers feel locked into their current provider and don’t feel that they are able to switch easily, it hurts the incentive of their current provider to offer something that is competitive. One of the interesting aspects is that even the threat of competition — the threat of being able to switch — benefits consumers. Even if you were to not make the move to another provider, just the competitive process in the aggregate itself can benefit people. We certainly feel comfortable in terms of past conclusions and statements from the bureau that this is a pro-competitive measure.
Senator Massicotte: Your focus is only on consumer banking per se, and it is good if we can increase competition because obviously that’s a sector all the experts indicate we have to make more competitive. What about the 95% of the economy that remains? How do we make that more competitive with flexible pricing and transparency?
Anthony Durocher, Deputy Commissioner, Competition Promotion Branch, Competition Bureau Canada: I am happy to take that one. Thank you for the question.
Our work applies to the entirety of the Canadian economy. The Competition Act covers every sector of the economy, and we work to protect and promote competition across the economy.
To come back to the question of productivity, in our respectful submission, more competition is the key to fixing Canada’s productivity woes. Many of us read the speech from the Senior Deputy Governor at the Bank of Canada calling it an emergency. We agree. We believe more competition is key. There are two distinct issues here. One is private restraints on competition, so that is abuses of market dominance, anticompetitive mergers and cartels. Our work enforcing the Competition Act addresses that. The next important frontier is public restraints on competition. These are the government policies, rules and laws that create barriers to entry in markets and protect sectors of the economy from more competition. That is an area we are consistently advocating for and trying to make recommendations. But the key is also recognizing the link between more competition and greater productivity.
Senator Massicotte: I wish you luck. I hope it works. You have to admit that a lot of people had the same story in the last 30 or 40 years, and we are stuck with what we have today.
Mr. Durocher: Yes.
Senator Massicotte: I urge you to be prudent and cautious and get on with it.
Mr. Durocher: Yes.
Senator Massicotte: Thank you.
Senator Ringuette: You were indicating that you did a market study report in 2017 about financial competition. What caused you to do that report on this particular sector?
Mr. Callaghan: Thank you for the question.
The start of that project was really about seeing some of the advancements in financial technology in other parts of the world and having a recognition that there had not been the same level of uptake of those kinds of services in Canada as we had seen in other countries. That led to questions. Why? What’s happening for consumers? What kinds of barriers might companies, fintechs or otherwise, be facing in getting into these markets and having uptake by consumers? That was the genesis of the study.
Senator Ringuette: You said you made 32 recommendations, I think, out of that report. Is one of your recommendations that the Financial Consumer Agency of Canada be the entity to supervise open banking in Canada?
Mr. Callaghan: We didn’t identify the body itself, but we did recommend that one body be identified to be in charge of some of those important parts of the framework — for example, accreditation, the scope of the data that would be involved, addressing liability and those things. We recommended that one entity take the lead so that all players in the financial ecosystem would have a common point of contact, but we didn’t recommend what that particular body would be.
Senator Ringuette: Thank you. I understand that.
I’m quite puzzled. Maybe you can figure it out for me. I am quite puzzled that we would say one senior deputy commissioner at this agency — I have been at this Banking Committee for 14 years now, and I have looked once in a while at that agency. Let’s just say I am not impressed. With adding one senior deputy to that agency, I don’t see how that one person with that responsibility will be able to, hopefully, in the next 18 months, come up with regulations to create the framework and to supervise. It’s a puzzle to me.
The Chair: You have about a minute to respond.
Senator Ringuette: Can you add to or correct my puzzlement that one person will be the god of open banking at the consumer agency?
Mr. Callaghan: I confess that I don’t know in detail what the full plan will be for establishing operations, if I can put it that way, under the senior deputy commissioner. I know that a budget has obviously been put in place for implementation, so it may very well be that a staffing framework might flow from the senior deputy commissioner. Certainly, that’s a title that is familiar to us at the Competition Bureau. We have a senior deputy commissioner who heads up all of our mergers and monopolistic practices, as well as our cartels and deceptive marketing. At least from our own experience as an enforcement agency, that is the leadership position that oversees quite a lot of work and people. They would all have expertise in their own areas, obviously, but we’re not the expert or have been deeply involved in terms of designing the structure.
Senator Ringuette: Thank you.
Senator Varone: Unlike my esteemed colleague who has been here for 14 years, I’ve been here about 14 minutes.
I believe in the concept of a consumer-driven banking framework, and I firmly believe in competition. Competition isn’t just the pricing of a financial product. It’s much more holistic. To give you a case in point, I know many businesses, including mine, bank and borrow because of a relationship but use a platform of another financial institution because it’s a better platform. When you’re devising this framework, is there any element that allows the consumer to rate their hours of operation, the human element within the banking system, whether that is a contact at the other end of the phone or if the hotline ever gets answered? How does all of that factor into the open framework?
Mr. Callaghan: We think about competition similarly to how you described it. It is much more holistic, and it’s not just price. It includes innovation that those companies are bringing to the market, the quality of the service that they bring and the variety of the services. All of those things really will benefit from an initiative like opening banking or consumer-driven finance because —
Senator Varone: Will they be rated?
Mr. Callaghan: We’ll see how customers react, but the first step is to encourage the entry of those kinds of services. Without the competitive intensity that can come from an openness or freer flow of the data to allow some of those new companies to enter the market and to see some of the new innovations come in, we aren’t able to really see how those customers will rate it. Time will tell.
Senator Varone: I’ll give you my fear: If it is price only, it’s a race to the bottom. Then, for them to be competitive, they’re firing all their bank managers and having fewer and fewer attendants on their 24-hour call lines. I want to believe that it’s going to work out, but I have some fears.
Mr. Durocher: One benefit of the system is just unlocking innovation. By bringing more players to the market, they might cater to product categories that don’t quite exist yet or create new categories.
In terms of rating, the lower we put switching costs — so the easier it is for customers to switch and to import their data — the more it enables customers to vote with their wallets. That way, we get market forces working, and the market will determine who provides the most value for consumers. It might be reflected in price, but it might just be offering products that do not exist now or that exist but are difficult for customers to move their data there. The idea of non-price dimension is certainly top-of-mind with systems such as these.
Senator Varone: Thank you.
[Translation]
Senator Gignac: I’d like to welcome the witnesses. I apologize for being late; I missed your opening remarks because, like my colleague, I was in the other room listening to Minister Freeland’s explanations.
I understand that in early April you made recommendations following consultations with the Department of Finance regarding the financial sector and competition. You made some recommendations, one of which was very specific. When people renew their uninsured mortgages, should they decide to shop around and switch financial institutions, they’re subject to the stress test. In some cases, with rising interest rates, they can no longer borrow to buy their home. So they’re forced to stay with their current financial institution. What was the reaction to your recommendation to the Department of Finance?
Mr. Durocher: After the recommendation was made, in the weeks following the submission of our brief, we learned that the Office of the Superintendent of Financial Institutions, the agency responsible for the stress test, decided not to change its policy on that. We’re still trying to promote changes like the one we’ve proposed, because it’s very important for consumers. Especially when they renew their mortgage, we want them to be able to benefit from competition. Our brief contains data proving that it is possible to find lower interest rates when the time comes to renew a mortgage, which can mean a difference of hundreds of dollars a month for consumers. We will continue our work to promote our ideas, including this one.
Senator Gignac: You didn’t get a satisfactory answer as to why they didn’t adopt it? It seems fairly obvious to me. Like my colleague, I’ve worked in the financial and banking sector. The stress test is a very good macro-prudential measure. However, with rising interest rates, it does limit competition and the ability to shop around.
Could you share the numbers you’re referring to and the study you produced with the committee? We’ll be hearing from representatives of the Office of the Superintendent of Financial Institutions, and we’d like to ask them why this recommendation was not adopted.
Mr. Durocher: With pleasure. We’ll provide you with the key points in our brief and the relevant data.
Senator Gignac: I’m changing the subject. Let’s talk about grocery stores, a sector with less competition than the financial sector — and I agree with my colleague on that. The 2024 Budget addresses this issue. For example, certain practices prevent a grocery store from opening in a shopping centre if one already exists there. What steps have been taken or what are the government’s intentions to increase competition? Is there anything new on your end, with respect to Minister Champagne’s initiatives to increase competition?
Mr. Durocher: We are not really in a position to discuss Minister Champagne’s initiatives. To promote and protect competition in the grocery sector, we conducted a market study in this sector and recommended several measures that governments could adopt to increase competition.
A foreign grocer entering the Canadian market would be a major step forward. We believe Minister Champagne is trying to make this argument to foreign grocery stores.
Secondly, an important recommendation we made to the government was to prevent the use of ownership controls, especially as they create a barrier to entry and expansion in the sector. Very recently — and I can talk about this, because it’s in the public domain — we started investigating grocery giants regarding their use of ownership controls, to see if it went against the Competition Act. This is part of our enforcement role. As with any investigation, you have to gather the facts and evidence to analyze them properly. What’s clear is that the sector is a priority for us, because we understand that it’s truly a priority for Canadians right now.
[English]
Senator C. Deacon: Again, thank you for being here, Mr. Durocher and Mr. Callaghan.
I want to go to the revisions to section 12 of the FCAC Act again and talk a little bit about the advisory committee to the senior deputy commissioner related to matters concerning consumer-driven banking. You made a point early in your first comment that those who are governing a system or advising regarding the system shouldn’t have a direct link to the outcome, because that is not then an independent piece of advice. Finance Canada has run some tremendous consultation processes on this issue. You spoke about your 2017 report, and we had our 2019 report. I think we had the word “urgent” on every page. We really saw a need for screen scraping to be pushed out by a more robust system, and the independence is of crucial concern.
My biggest concerning about FCAC being in charge of this governance is, for example, advisory bodies could be the interested parties rather than these who are at arm’s-length, and we can see this as being a limiting factor where we create an open banking system but we are not using that expertise to move to the next areas of data, as you spoke to earlier in your earlier round of questions, and using data for the benefit of Canadians across the economy. This is a great first step. This will get us going, but let’s replicate it in every sector. If it is siloed within FCAC, that could be a risk. Especially if the advisers are tied just to the banking sector, we develop a system that has no ability to be replicated across the economy.
What advice would you give to this government that we might choose to pass on regarding how we optimize this investment or decision that is being made right now? It’s crucial at this point in establishing a framework. What advice would you give to make sure we optimize the opportunity?
Mr. Durocher: If we look at the potential of data portability across the economy outside of banking, I think that’s a very important point. Other countries have already moved forward beyond banking. Australia is a great example with the consumer data right. From our perspective, the framework proposed in Bill C-27 that would lay out regulations for a data mobility or a data portability framework are going to be important to set the foundation for the rest of the economy. That is something we are looking forward to. If the bill becomes law and a framework is put in place, that is something we would be keen to participate in to make sure we’re creating a foundation for data mobility across the economy.
The other point is independence. I don’t think we can underscore that enough with the governance. We see it time after time in our work that, oftentimes, we can have the most well-intentioned system, but it can be death by a thousand cuts if there are numerous ways for the system to be undermined. Governance is a key issue. We want to make sure that the entity or the people who control the pipes have the public interest at heart rather than any specific private interest being at play. Again, that is something we’ve seen time and time again in our work across different sectors of the economy — how a vertical integration can create incentives where you’re foreclosing access to others. Sometimes, it’s just at the margins, but it adds up. That’s why the independence of the governance is critical. That’s something we will continue to advise, not just in respect of open banking but regarding general frameworks for open data.
Senator C. Deacon: Do you see any major differences in the controls that need to be in place in terms of privacy, security and liability management in the transfer and portability of financial data versus health data versus any other personal data we have in our lives?
Mr. Callaghan: Certainly. They’re all important interests to be guarding against. Protection of personal health information is obviously extremely sensitive. Financial data is as well. We all have an interest in uptake of the system because of the potential it holds. We want to make sure there are enough safeguards in place that consumers feel sure they’re in control of their data and that it’s moving to another provider that will protect those interests. At the same time, we want to make sure that the system moves ahead.
One thing we’ve seen from our own experience at the Competition Bureau is that some of those competing interests can be raised as a pretext, essentially, to keep the gates closed on data. It was an experience we had in our Toronto Real Estate Board case, where an innovative business model in real estate services was really being kept out on what was ultimately found to be a pretext of privacy. That rationale was not borne out when we brought our case. It’s just something to be mindful of when it’s raised as a rationale to either slow down or stop.
Senator C. Deacon: Thank you very much.
Senator Loffreda: You mentioned data and data sharing. He who owns the data owns the future. That’s so important. Many Canadians are glad to see that data sharing is now being brought into the banking industry.
We are the last G7 country to adopt opening banking. You’ve talked about having performed research on various industries and various subjects. Given the fact that we are the last country in the G7 to adopt open banking, there are concerns from entrepreneurs, such as Senator Varone, where we say it is a race to the bottom. It’s not just about margins because banks will always find a way to make money. I remember that when I started in banking, we were charging no fees. It’s not my fault that the fees have gone where they have gone, and that ages me a little, but I’m not concerned about the margins. I am interested in how it has affected industry or businesses in other countries that adopted the open banking concept. Is there anything we can use as best practices to enhance our model, because it is only a framework we are putting together going forward?
Mr. Callaghan: If we look to some of the other jurisdictions that are further ahead, for example, the U.K., we have seen a lot of uptake. This is now a little dated, but I think at the start of 2023, they had something like 6 million active users in open banking at that point, and certainly trending well.
We have seen new services come to the market. It goes to the point about how companies compete in the digital age. It is much more about competition on innovation and new services as opposed to making a better process for the product to just drive the price down. Certainly price is always important, and competition can deliver lower prices, but in the digital economy, I think what is encouraging is seeing new businesses models. But the access to the data is what is really important.
Some of the examples that we have seen are account aggregators, new ways for other financial applications to interact, providing loans in certain situations and much more ability for consumers to switch with the confidence that they are not beholden to their prior provider and are going to be able to take their data with them.
Senator Loffreda: Thank you very much.
Senator Varone: This is a technical question. Consumer creditworthiness is generally governed by credit reports, and in Canada, TransUnion and Equifax pretty much have a monopoly on generating those reports for banks. In an open banking concept where you have the ability as a consumer to say, “Hey, give me your best price for a mortgage, and you give me your best price for a credit card,” each company you approach pulls a credit bureau on you. That results in a derogatory element on your credit report, lowering your score. In open banking, I can see where it is going to be a race to the bottom on credit scores for consumers unless you bring into the fold the Equifaxes and the TransUnions to not hit the consumer over the head for being part of an open banking system and looking for the best price, because derogatory reports never come off your bureau.
Mr. Callaghan: I am not an expert in terms of the technicalities of how that would work. What I would say is that there have been encouraging stories about the potential for consumers to develop credit coming from open banking initiatives, and that is by using other applications to offer new sources of finance — for example, something that could track rent. For people who may not have a credit card at the moment, they can aggregate more credit potential by financial offerings, and open banking is giving them new potential to build that kind of credit score.
Senator Varone: Not at all, not if every entity is pulling a credit report on that consumer. Then they will get hit numerous times in terms of their credit. Unless that gets straightened out, you are going to have an issue down the road. You need to include the bureaus, TransUnion and Equifax, in part of this framework and try to ensure that they don’t hit the consumers over the head for being part of an open banking system. That is just the reality.
The Chair: Thank you. Taking that on board, I’m sure.
Senator Ringuette: Where do you see the Privacy Commissioner’s role in all of this?
Mr. Callaghan: The Privacy Commissioner, obviously, is distinct from the Competition Bureau’s mandate. I want to be careful about our own expertise speaking to it. Again, we are not designing the framework.
Obviously, privacy is one of the interests that I think we want to be careful about when an initiative like this is carried out, because consumers are interested in what is happening with their data. The Privacy Commissioner, from my understanding, obviously, has responsibilities for federally held information under the Privacy Act but also under PIPEDA for private information. As my colleague Mr. Durocher mentioned, there are currently matters before Parliament for a broader data portability initiative under Bill C-27, a general right to data portability that I think could have a much broader application to other parts of the economy. Specifically to this framework regarding open banking, I’m not sure if there is anything else he would add, but there is nothing I would offer in terms of a specific role.
Senator C. Deacon: I just want to speak to how far behind we have become despite early work at the bureau, early work in the Senate and a lot of consultations at Finance Canada that have been transparent, inclusive and impressive. The ACCC in Australia, the Australian Competition and Consumer Commission, has led a lot of this work. There are now 49 countries, Senator Loffreda, that have an open banking framework, but Canada doesn’t. The ACCC has been a big leader in that work and has been listened to by Parliament. What differences do you see and what advice would you give us to ensure that the voice of our Competition Bureau is heard a little earlier in some of these debates?
Mr. Callaghan: We have been trying to promote the role of competition, not only in financial sectors but in the entire economy. This is not news to say that Canada has a competition problem. We have recently done work on that, a study of the past 20 years of competition in Canada and competitive intensity, but comments go back to the 2008 Compete to Win report by Red Wilson where it was clearly acknowledged that Canada was not placing enough importance on competition in its economic affairs. As Mr. Durocher said, I think the turning point for Canada now is that we have had a major modernization in one part of competition and policy law, which is the Competition Act, so we are extremely encouraged by that. There is a lot more work to do.
Public restraints on competition, obviously, are a big factor there. These aren’t my words, but many people have felt that we’re leaving many dollars on the ground by some of these restraints on trade — for example, interprovincial barriers. But it will take a whole-of-government approach to tackle that. That is what we’ll be advocating for.
The Chair: Just in the business of multitasking here, this committee received a letter today that has been forwarded to Minister Champagne and, of course, to the Minister of Finance, Chrystia Freeland. It concerns Bill C-59, and we don’t know if that will come here or go to the other committee or both. There are concerns related to the amendments to the Competition Act that were put into the bill, and concerns from this group, Pathways Alliance, who have testified here on other issues, that it will create a chilling effect and prevent companies from making statements about their environmental performance or their plans. They have some legal information on that. If we forward this information to you, would it be possible to get a written response from you? We’re into this crazy period right now in June when we have no time to deal with anything, which is why I am kind of multitasking. If we could ask you to do that, we’ll forward this, and it would be great to get your comments on the impact of those amendments.
Mr. Durocher: We would be happy to do so.
The Chair: That’s wonderful. Thank you very much.
Senator Massicotte: [Technical difficulties] — we’re tired of hearing about open banking and open banking. But please do something that can look good for a while.
The Chair: We have done a lot of studies on this. So, yes, if we could just make him happy, that would be great.
Mr. Bradley, Callaghan, the Associate Deputy Commissioner, Policy, Planning Directorate, and Anthony Durocher, Deputy Commissioner, Competition Promotion Branch, at the Competition Bureau, thank you very much for joining us today and answering this wide range of questions.
Thank you to our second panel of witnesses who has been waiting patiently. We appreciate that. We have representatives from the Canadian Bankers Association: Andrew Ross, Senior Vice President, Payments and Digital; and Alana Barnes, Director, Digital Policy. We have seen you here before, and we appreciate your return. Thank you very much. We will begin with your opening statements, Mr. Ross.
Andrew Ross, Senior Vice President, Payments and Digital, Canadian Bankers Association: Thank you, senators, and good afternoon, chair. It is a pleasure to appear before this committee to discuss the provisions related to the consumer-driven banking framework introduced in Division 16 of the BIA.
The Canadian Bankers Association is the voice of more than 60 banks operating in Canada, employing more than 280,000 Canadians, that help drive Canada’s economic growth and prosperity.
As key contributors to Canada’s competitive and innovative financial services sector, the CBA and its members remain supportive of a consumer-centric approach to harnessing innovative technologies that provide tangible benefits for Canadians. Providing Canadians with the ability to securely access and use their financial data will promote consumer confidence, trust and adoption of consumer-driven banking.
The framework is guided by three core policy objectives: safety and soundness, protecting Canadians’ financial well-being and fostering economic growth and international competitiveness. We support all of those objectives and provided a number of recommendations to the government to help guide the successful implementation of the framework. We are encouraged to see general alignment between some of the CBA’s recommendations and the framework in BIA 1.
The provisions of the bill that establish a governance structure which oversees compliance and supervises the framework will enable the effective governance required for securely sharing financial data.
Another key feature of the bill is the government’s phased approach. We appreciate the clarity this provides on the initial scope of the framework by confirming the products and services to be included, the exclusion of derived data and the requirement for read-only functionality.
We also believe that, based on the principles outlined in the bill, a timely designation of FDX as the technical standards body is needed. Work has long been underway in Canada and the U.S. with a diverse group of organizations in the financial data ecosystem on the FDX standard, and prompt designation would clarify the requirements needed to expedite implementation and lead to greater participation and interoperability.
As future details of the framework are addressed, it is imperative that Finance Canada ensures regulatory harmonization by leveraging existing regulatory frameworks where applicable. Doing so will inspire greater consumer trust in the framework and lead to higher adoption rates as consumers enjoy a consistent experience. It will also support an economically sustainable framework that encourages participation, innovation and competition for the benefit of all Canadians.
Finally, we recognize a lot of work remains to address the remaining elements of the framework in BIA 2. As strong supporters of consumer-driven banking, we look forward to continued collaboration with the government to advance the development of a successful framework in line with its policy objectives.
We would like to thank the committee again for the opportunity to appear today, and we look forward to your questions.
The Chair: Thank you very much. We will begin our questions with our deputy chair, Senator Loffreda.
Senator Loffreda: Thank you to our witnesses for being here.
Data sharing is key. As I said, he who owns the data owns the future. Do you have any concerns with respect to the fact that data will be shared amongst many parties now, many smaller players besides the banks and financial institutions which we all know of, that will be sharing that data? Are you concerned with cybersecurity, for one?
You did mention that a lot remains to be addressed in the framework. What are some of the major issues that you feel should be addressed on a timely basis?
Alana Barnes, Director, Digital Policy, Canadian Bankers Association: Thank you for the question. It is a great question.
Yes, security of the framework is very important. That is why it is important to have an oversight framework to ensure there are common rules for all participants such as security, making sure that Canadians are well protected. It moves away from risky screen-scraping practices, so it brings into the fold participants who want to share their data and participate in the system under a framework subject to common rules.
On the other element that you said, what else can be addressed, there is the establishment of the common rules themselves, the accreditation standards and how each entity can meet those expectations.
Senator Loffreda: Was there enough consultation with the stakeholders with respect to what needs to be addressed in the future going forward?
Ms. Barnes: Yes, the government has held a number of robust consultations. Our members have been participants of those consultations, and we look forward to continued engagement moving forward.
Senator Loffreda: Thank you.
The Chair: I have just a more general question now because we are getting a lot of bills in this form, which is framework bills. There is not a lot of meat on the bones. Are you comfortable with what you have seen? Are you trying to suggest things that must be added and need to be added? How is that process working?
Ms. Barnes: There are additional elements that need to be addressed in the bill such as privacy, security, liability and accreditation framework, and those will be addressed in the next phase.
The Chair: All right. We’ll come back to that.
Senator C. Deacon: Thanks for being with us.
I want to ask about FDX. One of the things that has troubled me when I have been in any consultations with CBA or at CBA events, is that when I ask about open banking, I get, “Oh, we are fully supportive, but …” The “buts” are that we want to make sure consumers and privacy are protected and liability is managed, all things that everybody wants. Those aren’t “buts.” That’s what we have been dealing with in the consultation. The other thing I get is, “Well, if it walks like a duck, looks like a duck, quacks like a duck, it is a duck,” implying there is a prudential risk in open banking, but this is data sharing. There are no prudential risks to be managed.
So the CBA has not necessarily been a leader in championing this, but I want to get your sense about whether or not that has changed. Are you behind its implementation? Are you going to be encouraging its implementation fully?
Ms. Barnes: Yes, we’re very supportive of moving forward with the open banking framework.
Senator C. Deacon: Super.
Let’s, then, look at FDX. It’s American-controlled, with an American board. There is Canadian representation on that board. This government has promised a made-in-Canada open banking solution. If the core of the system does not have an independent governance base, as we have heard strongly from the Competition Bureau — that is crucial to making sure that we move ahead — and isn’t, then, the basis of moving ahead on open data, are we not setting ourselves up to really just having another slight continuation of the status quo?
Ms. Barnes: We believe in the timely designation of a standard so it can build toward a framework. The FDX has a number of participants, ranging from banks, to financial institutions, to fintechs in Canada. Supporting a framework or standard that’s already being supported by a number of participants will help build and move forward a faster implementation.
Senator C. Deacon: But it doesn’t have the independence and governance that the Competition Bureau has said is crucial to our success. Therefore, should we recommend that, if we adopt that body, that they should set up a Canadian division that is governed independently in Canada by those who are at arm’s length to the process so that we actually do have a made-in-Canada solution?
Mr. Ross: When we look at FDX, as Ms. Barnes said, there are over 230 entities involved in FDX today in North America that are well beyond just the financial sector or the banking sector. If I think about productivity and competition, the advantage of using a standard that already exists is that you actually have 230 willing participants ready to go, building today to that standard that could then actually come into the Canadian framework. From a Canadian fintech perspective, you would have Canadian fintechs building to a single standard and perhaps open up into the U.S. market for those fintechs who operate in Canada. So there is a productivity and competition component of that.
The other thing I will say is that the act does lay out some of what I’ll call requirements of the government, which we believe will need to be met before FDX or anyone else is accredited.
Senator C. Deacon: The interoperability isn’t necessarily that helpful when you have different regulatory regimes and different privacy regimes between the United States and Canada.
I want to get a specific answer from you about the governance of FDX and the governance of this system. Are you in agreement or not with the sorts of framework principles that were put on the table in the previous hour by the Competition Bureau about the importance of having governance that is independent?
Mr. Ross: We are supportive of exactly the requirements as noted in the act that would create a made-in-Canada solution, which would address the governance issues that I believe you —
Senator C. Deacon: It doesn’t actually say the independence of governance in the act.
Mr. Ross: Today, FDX is a multitude of entities; it is not just the banking sector involved. They would manage the data elements, or at least the requirements or specifications, but they are not owning the framework. They are not owning how far open banking goes.
Senator C. Deacon: But this is the API, the governing of how that is run. Thank you very much.
Mr. Ross: I see the governance being, as the government has said, through FCAC.
The Chair: Okay, thank you.
[Translation]
Senator Gignac: Welcome to the witnesses. I’d like to know if you were somewhat surprised, with respect to section 16, that the government and the Minister of Finance chose to give responsibility for the new financial services framework’s mandate to the Financial Consumer Agency of Canada. Were you consulted on this matter? Since banking is federally regulated, it’s only natural that you should have been closely consulted. Were you consulted on this matter? From what I hear, many were surprised that the Financial Consumer Agency of Canada was handed the responsibility.
[English]
Ms. Barnes: Thank you for the question.
The decision to choose FCAC was the decision of the government. From our perspective, our industry was consulted upon what that governance entity should have oversight for. We were not consulted about who exactly should be selected as the governance entity.
[Translation]
Senator Gignac: Are you surprised by that choice? OSFI or another governance entity could have been chosen. Are you surprised by the choice?
[English]
Ms. Barnes: The governance entity choice was for the government to decide, although we would note that they are receiving additional funding to meet the requirements. Right now, there is no governance entity that has all the disciplines and that has the capacity to oversee a consumer-driven banking framework. There is a privacy component, a liability component and a security component. With the funding provided to the FCAC, it will need to build the requisite expertise to oversee the framework.
[Translation]
Senator Gignac: The government is moving forward with open banking and it’s long overdue. One of the reasons why Canada is lagging somewhat is that the Canadian financial system is different, and some players fall under provincial jurisdiction. Credit unions, Desjardins and other big players come to mind. Clearly, there needs to be collaboration and harmonization, insofar as the agency is not Interac. Interac brings together industry players who are accustomed to working together. But this is the federal government. Do you see any problems with the harmonization and integration of players under provincial jurisdiction?
[English]
Ms. Barnes: We believe it’s important to have a strong governance oversight framework. When you look at the framework itself, it is important to have a consistent consumer experience. If you were to introduce fragmentation or a change in that, it could negatively impact the framework itself. You want a consistent experience for the consumers when they are engaging in the open banking framework. It is also important to look at the entities wanting to participate. If there were a variation in oversight, you could have a challenge for those entities wanting to participate if they have to address any fragmentation that could be introduced. We support strong governance entity oversight that has consistent experience for the consumers as well as the participants.
Senator Marshall: We have had several organizations in to talk about this, and it’s very difficult to get a perspective on what the role of each organization is. What is the role of the Canadian Bankers Association? You said earlier you had made recommendations. What were the recommendations, and what were you making recommendations to? Are you actively involved, or are you just an onlooker and making suggestions? Can you just clarify that for us?
Ms. Barnes: The CBA represents our member Canadian banks, and we advocate and support an efficient and sound financial system. During consultations, the CBA provided our feedback to the government on the open banking framework, representing members.
Senator Marshall: They were consultations on open banking.
Ms. Barnes: Yes.
Senator Marshall: Was it just on the framework?
Ms. Barnes: In response to consumer-driven banking, yes. We had a submission when Finance first introduced open banking, and we also have a statement on our website outlining ideal principles to have a strong, supportive framework.
Senator Marshall: I think in some of your remarks, you referred to the existing regulatory framework. What were you talking about there?
Ms. Barnes: We’re speaking to leveraging existing frameworks to ensure there is strong adoption and clarity for all participants. Different legislation will apply to participants, like privacy, for example, and also consumer protection.
Senator Marshall: Is something in the legislation talking about a standards-setting body? What is the standards-setting body, or is that something that is still out there and not decided upon? Can you tell us what it is?
Ms. Barnes: We support the selection of the FDX standard. The act itself sets out the principles for which the technical standards body will be chosen. The role of the technical standard outlines how entities will be communicating to each other, so it shifts away from screen-scraping practices to some more secure channels.
Senator Marshall: Do you foresee any more involvement by the Canadian Bankers Association in developing the framework, or do you think at this point in time your participation is finished and you’re going to wait until they move to the next phase and then you’ll surface again with your comments?
Ms. Barnes: No, we expect to engage with Finance as it moves forward with the consultations and discussions on the remaining elements of the framework.
Senator Marshall: So almost like partners?
Ms. Barnes: Yes.
Senator Marshall: Okay.
Senator Ringuette: You said that you had 60 bank members. How many of these banks have started fintech companies?
Mr. Ross: How many have started?
Senator Ringuette: Yes. In the last five years.
Mr. Ross: I believe there have been challenges in the past with the ability for banks to invest in fintech organizations. I don’t have a distinct number. I know there have been a lot of partnerships that have been established over the years between fintechs and our banks. At the end of the day, the sector crosses the entire country, and we believe in a competitive market that requires banks to, in some cases, partner with fintechs to offer specific services for specific customers.
Senator Ringuette: Okay.
You mentioned, Ms. Barnes, that everyone needs to come under the same common rules. You are subject to OSFI regulations that supervise the state of your assets to ensure that the assets that Canadians own in your banking entity are well protected. Is that one of the items that you will ask to be part of the framework for this new venture of open banking?
Ms. Barnes: When I speak to common rules, I am speaking to the common rules as participants under the framework. We’re not suggesting the same oversight of banks, as there are a number of different products and services that banks offer. Specific to the framework itself, we want to see common rules for all participants so that it is a consistent experience for consumers.
Senator Ringuette: But that does not answer my question. You are subject to OSFI.
Ms. Barnes: Yes.
Senator Ringuette: With these new financial entities that will only require an exchange of consumer data, there needs to be a protection mechanism for the Canadian consumer in all of this. You are subject to OSFI regulations and supervision. Do you find that these new financial entities should be under the same protection obligation for the Canadian consumer?
Mr. Ross: We’re not advocating that OSFI oversee everyone who falls under this framework, participants in the framework, but there are elements of what OSFI does today that, again, this framework does need to address to ensure that there is security in the data that is transmitted. At the end of the day, we’re talking about people’s personal and financial information, which we do need to hold at the highest standard.
Senator Ringuette: It’s still not quite the answer I was seeking. Maybe my question was not asked correctly.
[Translation]
Senator Bellemare: Please feel free to answer my question in the language of your choice. Thank you for being here.
My question relates to the minister’s instructions and the links between the minister and the addition to the entity, to the Financial Consumer Agency of Canada. Are you satisfied with the additional powers granted to the minister? Do you find them sufficient or too substantial?
[English]
Ms. Barnes: Yes, we are supportive of the additional powers afforded to the minister under the consumer-driven banking act.
[Translation]
Senator Bellemare: When it comes to the entity that will oversee institutions linked to the open banking system, do you find it resembles what is done elsewhere, or is it specific to Canada? Do you understand the question?
[English]
Ms. Barnes: Yes.
Similar to other jurisdictions, they have a governance oversight body. That governance oversight body has varied depending on each jurisdiction. In Canada, there currently is no existing regulator or body that has all the disciplines needed to oversee consumer-driven banking. The choice of the FCAC was at the discretion of the minister, and we would expect to see funding provided to the FCAC in order to build the requisite expertise to oversee the framework.
[Translation]
Senator Bellemare: Will our system be completely different from the one in the United States, for example, or is it somewhat similar?
[English]
Ms. Barnes: No, I think there are similar approaches between Canada and the United States. In the United States, they’re looking for the Consumer Financial Protection Bureau, or CFPB, to oversee the framework. It would be similar to Canada as well.
Senator Massicotte: When I look at your group, it is a group of big banks, and now we’re going to be talking about 20 or 30 smaller fintech companies. Should we be worried about whether these companies survive when you have the big banks knocking on the door? Even if you come with a smile, it’s kind of threatening to the smaller banks. How do we make sure the smaller fintech companies behave and are successful and not dominated by the big guys?
Ms. Barnes: It’s a great question. Setting out an understanding of what the framework entails will provide clarity for all participants to become a part of the framework. Competition is certainly critical. We very much support a competitive framework and innovative solutions. By setting out clear expectations for what entities can do and participate in the framework, it enables them to determine if they want to participate.
Senator Massicotte: What happens to those companies which misbehave? In other words, is there somebody who is going to punish them? Is the Canada Revenue Agency going to review it? How do we put in the right system there?
Ms. Barnes: The oversight framework introduced as part of the act for the accreditation body, FCAC, has the ability to revoke accreditation if they’re not adhering to the common rules out in the framework.
Senator Varone: I had a very similar question to that of Senator Ringuette, but let me ask it in a different way.
Open banking means there are more players in the banking sector, and there are more products and more competition. OSFI has oversight over the capital requirements of the Canadian banks. Who will have oversight of the capital requirements of all the rest of the competition coming into open banking to ensure that consumers are well treated? Let me just give you an example of that. When the financial crisis hit the U.S. in 2009, those companies that had to do business both in Canada and the U.S. with some of the Canadian banks had difficulty getting their loans in the U.S., so they came to Canada using the same bank but for lending to the U.S. product. No one guarantees the state of world affairs in the future, so that push-pull happens all the time, but it’s OSFI and their capital requirements that really ensure for Canadians that the banks remain viable under every crisis scenario. Who is going to do that? I think that’s where Senator Ringuette was headed.
Ms. Barnes: I’m happy to take that question. Thank you for that question.
Part of the accreditation process will be looking at whether they have — I might not be using the exact term — financial capacity to participate. Do they have the right governance, the financial capacity, in order to be a part of the framework itself? That would address your point as to whether or not they have the right governance and ability to participate in the system.
Mr. Ross: I think where you’re heading with this is under the read-only component, which is phase one and that’s what this bill is addressing, at least to start, because you’re not exchanging financial transactions, payments, you don’t have the same concerns from a capital perspective. It’s not like a consumer is transmitting funds to another party and then they don’t have the capacity to back it up. When we get to future phases, that is something we will need to address. I know the government is addressing it certainly from a payment service provider perspective under the Retail Payment Activities Act to ensure that consumers’ financial funds are protected at all times.
The Chair: Okay. Let’s be clear here. You’re not writing the legislation.
Mr. Ross: We are not.
The Chair: The government is. Did you have a specific recommendation on that to the senator’s questions about how to deal with that? I realize it’s being phased in, but there is an inevitability here. Have you said that in the future, once we get beyond read only, that they should be under OSFI, or have you made any other kind of recommendation?
Mr. Ross: We have not. To be clear, we have not yet, no.
The Chair: Good. I think we’re good there then.
Senator Loffreda: I just wanted to mention that June 19, 2019, our Senate Banking Committee issued an insightful and thorough report on open banking, which was very well received, and Senator Deacon was a prime player in all of that and all the other senators that were here. I can go around the table.
That being said, are you confident that the smaller participants will adhere to the common practices? You did mention it. I’m saying that because any business can choose to become part of the consumer-driven banking framework — any business. Any accreditation requirements will be outlined in the second phase of the legislation in the fall. That includes a formal accreditation process, as you know. But here is my question: In principle, the framework is impartial to business models, size and activities and only requires that a business meet the accreditation requirements. Do you see a concern there where other business models will be able to adhere to the consumer-driven banking framework, which will create a different industry? Our industry as it stands is one of the strongest in the world. Is there any concern from the Canadian Bankers Association that that will change the makeup or the DNA of the industry? Do you see other business models — I can throw names around, but we all know the business models that could get into open banking and share that data. How will that affect the industry?
Ms. Barnes: I’ll answer the first part. Participating in the framework, they need to adhere to the common criteria, and if entities are not adhering to the framework, the FCAC has the ability to revoke accreditation.
If you’re asking the question on participation of other entities more broadly, one of the aspects that we highlight is reciprocal data exchange. If you are to participate in the framework itself, at the consumer’s permission, they can also share data back. I think it will be an important piece when any participating entity comes into the framework that they’re subject to reciprocal data exchange to reduce the risk of any asymmetry of data going one way.
Senator Loffreda: So there are no concerns on your part that that will change the industry at all or weaken it? It should enhance the industry, consumer protection and access to the consumer?
Ms. Barnes: We’re very much supportive of a consumer-driven banking framework. We want to see innovation and competition and common rules for all participants entering into the framework.
Senator Loffreda: For all participants. Thank you.
Senator C. Deacon: Ms. Barnes and Mr. Ross, I’m going to give another try at this. Do you agree that good, independent governance is crucial to the implementation of broadly based systems across the country?
Ms. Barnes: Yes.
Senator C. Deacon: Yes. In principles of the minister choosing a technical standards body — not a technical standard but the technical standards body — you’re already very much in favour of one standard, but that standard is tied to this one body, FDX, and the minister is responsible for choosing the body. Is it good governance when you have the intention of having a made-in-Canada system that the core of the system, the API that all the data is flowing through, be governed by representatives of American banks and dominated by a U.S. system when we’re looking for good Canadian governance? Do you think that is an appropriate path for us to be taking?
Mr. Ross: Part of the made-in-Canada approach is to have government-led industry supported, and part of this support is something we believe could or should include FDX. The work has been done. Again, we believe the act does bring in important governance elements that FDX or any other standard will need to meet the government’s requirements to ensure its impartiality.
Senator C. Deacon: Specifically, one of the requirements in choosing the body is good governance. Those words are in the changes to the FCAC Act.
Mr. Ross: That is correct.
Senator C. Deacon: Do you believe that choosing a standards body that has an American board of directors, dominated by American banks, is the appropriate approach for Canada? Regardless of the technical standard to choose, does that fulfill what the minister has in her legislation?
Mr. Ross: Again, the act allows for the FCAC to validate that that governance does meet the standard. That may require changes to the governance model of the FDX. I don’t have an answer for you, sir.
Senator C. Deacon: That’s getting closer to one. Thank you.
Mr. Ross: We don’t control the FDX standard, nor FCAC, but we support the elements of the act.
Senator C. Deacon: All Canadian financial data travelling through the United States through a U.S. system is subject to the PATRIOT Act. From my standpoint, this is a very crucial question, and I’m glad to hear that you are very much open to the fact that it should potentially be on the table if the minister requires a change in the governance structure around FDX being applied in Canada. Thank you.
Senator Gignac: In fact, on April 15, you released nine principles, which I share completely, by the way, regarding consumer-driven banking after the budget, and one of them was about the regulatory harmonization. I understand that, because it’s important to have foster intergovernmental coordination and so on. Consumer protection is not only federal jurisdiction. We have provincial jurisdiction of consumer protection, not to mention regulatory bodies province by province, so I will repeat my question and more or less go further.
Is it a big concern that all of that will be concentrated at the Financial Consumer Agency? What do you think of another approach of governance with independence, with a board of directors which has around the table OSFI, Bank of Canada, and agencies including some provincial agencies? At the end of the day, Canada is quite different than other countries. It’s more decentralized, and market conduct is not exclusive to federal jurisdiction but provincial jurisdiction too. Do you have concerns about the governance model proposed by the minister?
Ms. Barnes: We’re not concerned. We support a governance model that has oversight. We certainly want to see consistent consumer experience. I think the approach of one governance oversight is the right way to go.
Senator Gignac: They have chosen the Financial Consumer Agency which has no link, no relationship and no interaction with provinces. It’s not —
The Chair: I think that’s what we’re trying to get at.
Senator Gignac: It’s not like Canadian regulators.
The Chair: The credit unions, the other bodies that are regulated in another way.
Senator Gignac: OSFI interacts with our provincial regulators. Canadian security regulators work together. Bank of Canada deals with credit unions, Desjardins, the bank, and Interac, which is different. The point is that that agency has no significant interaction with provinces. Is that a concern for you?
Mr. Ross: Certainly, we recognize that market conduct and the jurisdiction of market conduct, and we said that the FCAC will need to build out its capabilities. If one of those is to ensure that they’re working more closely with the provinces to ensure a consistent consumer experience, that at the end of the day is going to make consumer-driven banking successful or not in Canada. If Canadians do not have consistency, then you’re going to see challenges with adoption and trust, which will erode the framework.
Senator Gignac: Is a $1 billion budget enough to build expertise and skills for that agency?
Mr. Ross: Honestly, that is a question for the government.
Senator Gignac: Just kidding.
Mr. Ross: Fair enough.
Senator Gignac: It’s a nice try, but.
The Chair: Thank you both very much for being here and helping us look at it through your eyes. We know you’re not drafting all of this. Andrew Ross, Senior Vice President, Payments and Digital, and Alana Barnes, Director, Digital Policy from the Canadian Bankers Association, thank you.
I’m going to ask our members to stay in place for five minutes. We’re going to go briefly in camera, but I would like to thank you and bring our session formally to an end. We appreciate your participation. Thank you.
(The committee continued in camera.)