THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, May 30, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:29 a.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; and, in camera, for the consideration of a draft report.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Welcome to this 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 would like to remind all of you to use only the black, approved earpieces. The former grey earpieces cannot be used. Try, if you can, to keep your earpieces away from the microphones. We’re trying to help protect the interpreters from audio feedback.
Let me introduce the members of the committee with us today: our deputy chair, Senator Loffreda; Senator Bellemare; Senator Deacon; Senator Gignac; Senator Marshall; Senator Martin; Senator Petten; Senator Ringuette; Senator Varone; and Senator Yussuff. Welcome to you all.
I want to remind senators and our witnesses today that we have a large number of witnesses and a 45-minute session, so time will be very strict and tight. Please keep your questions and the answers as brisk as possible.
Today we will 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 of Part 4 during our meeting today. This division enacts the consumer-driven banking act, which establishes a 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 those banking matters and to provide for, among other things, the supervision of participating entities.
For our first panel, we are very pleased to welcome, from the Financial Consumer Agency of Canada — FCAC — which we’ve heard a lot about in the last few days, Werner Liedtke, Interim Commissioner; Frank Lofranco, Deputy Commissioner, Supervision and Enforcement; Annie Bédard, Executive Policy Advisor, Deputy Commissioner’s Office. Also, from Payments Canada, we welcome Donna Kinoshita, Chief Payments Officer; and Lisa Sattler, Director, Policy and Government Relations.
Welcome to you all. Thank you for joining us. We’ll go to Mr. Liedtke first for his opening remarks.
[Translation]
Werner Liedtke, Interim Commissioner, Financial Consumer Agency of Canada: Good morning. My name is Werner Liedtke. I am the Interim Commissioner of the Financial Consumer Agency of Canada, or FCAC, an independent federal agency that protects the rights and interests of consumers of financial products and services.
FCAC was pleased to see that measures to strengthen consumer protection and support the financial well-being of Canadians are very much front and centre in Budget 2024.
These priorities are reflected in Part 4, Division 16, which references FCAC’s expanded mandate, and in particular its new role in overseeing, administering and enforcing Canada’s Consumer-Driven Banking Framework, which will be the focus of my remarks today.
[English]
As a leader and innovator in financial consumer protection, FCAC is well placed to take on this new responsibility. Canadians are already well protected in their dealings with banks. Those who choose to participate in consumer-driven banking, also known as open banking, will benefit from consistently strong protections embedded in the framework’s design from the outset.
Consumer-driven banking can help people better manage their finances and improve their financial outcomes, and the framework will allow them to access those innovative services safely and securely. FCAC is working closely with the Department of Finance to advance the framework, which is guided by three objectives: safety and soundness, protecting the financial well-being of Canadians and advancing economic growth and international competitiveness. The Department of Finance is the lead on policy and legislative and regulatory changes.
Budget 2024 proposes to provide $1 million in 2024-25 to FCAC to support preparation for its new responsibilities and to begin development of a consumer awareness campaign. Over the coming months, we will work with the Department of Finance to engage with the financial sector and other stakeholders as we move toward implementing the framework.
I’ll close there to leave time for your questions. Thank you.
The Chair: Thank you very much.
Donna Kinoshita, Chief Payments Officer, Payments Canada: Thank you for inviting us here today. I’m Donna Kinoshita, Chief Payments Officer at Payments Canada. I’m here today with my colleague, Lisa Sattler, to provide input on Part 4, Division 16, of Bill C-69.
Payments Canada, also known as the Canadian Payments Association, is a public purpose organization that owns and operates Canada’s national payment clearing and settlement systems. We operate as a not-for-profit, funded fully by our membership. The Canadian Payments Act sets out our mandate, governance and accountability to the Minister of Finance and membership. As you may know, important changes to the Canadian Payments Act to expand membership are being considered as part of Bill C-59.
The Bank of Canada has oversight of our systems, including our high-value payment system that lets financial institutions and their customers send large payments securely. Our retail batch payment system is where the vast majority of day-to-day Canadian commerce is cleared and settled, and the forthcoming Real-Time Rail will enable Canadians to initiate payments and receive irrevocable funds in seconds. Payments Canada’s systems cleared approximately $112 trillion in 2023.
The financial sector around the world is experiencing a time of significant and innovative change. While this change can bring great benefits to Canadians and Canadian businesses, it is important that the safety and soundness of the financial system is maintained. A key way to achieve this is by ensuring that regulation keeps pace with innovation in a flexible, fair and risk‑based manner.
The proposed legislative framework for consumer-driven banking provides an important foundation for safe innovation. The ability to securely and selectively share data has the potential to fuel innovation and support Canada’s global competitiveness. We recognize that these proposed legislative changes are a first step in a potentially larger regime for consumer-driven banking that could one day include broader scope, such as payment initiation.
The work that the government is doing now to establish the foundational elements for a consumer-driven banking framework in Canada, along with the currently proposed Payments Canada membership changes and the implementation of real-time payments in Canada, will help set the stage for further innovative solutions and greater competition in a safe and resilient manner.
In closing, we look forward to continuing to follow the framework’s evolution and support the government, our members and stakeholders in any way we can. Thank you, and I am happy to take questions.
The Chair: Thank you both very much for keeping us on time. We’ll begin our questions with the deputy chair, Senator Loffreda.
Senator Loffreda: Thank you to our witnesses for being here this morning.
I was reading that the decision to name the Financial Consumer Agency of Canada to oversee the framework was informed by an extensive review of international jurisdictions and is in line with international best practices, and factors, including complexity, cost and time to stand up, were also considered. Could you comment if you are aware of other international jurisdictions where similar agencies were put in charge? Why is FCAC best placed to supervise the consumer‑driven banking, or open banking, as we call it?
Mr. Liedtke: Thank you, senator, for the question.
With respect to the first part of your question, I’m not aware of the background as to why FCAC was selected from the perspective of international jurisdictions, but I’m very happy to take on the second part of your question with respect to why we were chosen.
This role fits very much within our mandate of being a leader and innovator in financial consumer protection. As you are aware, there are two sides to our mandate. The first is the supervisory and enforcement section, which will help inform and shape the creation of the new entity led by the senior deputy commissioner. The second part of our mandate is to conduct research, policy and education. I want to focus on the education piece because consumer awareness will be critical for open banking.
We conducted some public opinion research in June 2023, and we found that only 9% of Canadians were even aware of the term “open banking.” The second interesting finding was that there was a general belief among Canadians polled that the protections that they receive from a fintech app were exactly the same as if they had their own Bank Act. Only 18% of those surveyed actually knew there was a difference in the protections. The final finding was that over 80% of those surveyed said that they would not utilize a financial app or service if they weren’t guaranteed certain protections.
Because of our supervisory expertise, our knowledge and our experience on consumer wellness, we feel that we are well placed to take a leadership role in consumer-driven banking.
Senator Loffreda: Thank you.
Senator Marshall: Mr. Liedtke, we’ve had a lot of discussion here in the Banking Committee about the senior deputy commissioner position. You must have given some thought as to how it will evolve. You’re going to assume, I would think, that the legislation is going to be approved. Could you give us some idea as to your preparation? Would you expect to see someone in that position in place soon? Also, I don’t anticipate it’s going to be one position. I would think it’s going to be a separate department or a separate division of the agency, so I’d like to know about that as well.
Also, you’ve appeared before the Finance Committee before. Have you given any thought as to how much money you would be looking for to operate that part of the agency? Could you give us a look into the future?
Mr. Liedtke: Thank you for the questions, senator.
Part of the million dollars that we’re going to receive will be used to search for a senior deputy commissioner. We also hope to leverage the current process to search for a commissioner of the agency. With respect to that timing, it creates a bit of a challenge. Ideally, the new commissioner would be in place to select the senior deputy commissioner. We don’t want to delay the process, so we will commence the search and, ideally, the timing will be such that the new commissioner can then select the deputy commissioner.
With respect to the second part of your question, with part of the funding we’re receiving, we’re looking to get support to help us with the structure. You’re correct that we would create a separate branch that would oversee consumer-driven banking. We’re an agency of only 259 FTEs right now and would be taking on a significant mandate. Mr. Lofranco and his division cannot take on that additional market conduct obligation, so we will create a separate branch. We’ll be studying what that structure will look like, and we’ll be making a proposal to government on the funding required.
Senator Marshall: Do you have a time frame in mind? Do you expect to have it in place in six months or by this time next year? Have you thought that far ahead?
Mr. Liedtke: We’re going to design the structure and classify the position. That will take some time. We’ve been asked to submit a funding request to fund the new structure by the fall.
Senator Marshall: We will see you in supplementary estimates, then. Thank you.
Senator C. Deacon: I am concerned about FCAC being in this space because I don’t know that it has experience that relates to this issue. Our committee suggested FCAC have an involvement in overseeing screen scraping when we did our report five years ago on a transitionary role. However, the FCAC’s lack of involvement in the area of consumer fraud through their bank accounts, where people are having money stolen through nothing that either they or their bank did wrong, causes me to have concern.
About 7 million Canadians are already using open banking. Most of them don’t even know it. They’ll never know the term. It’s like having an understanding of how an engine operates. People drive a car and want to have one that works. There are already 7 million Canadians using screen scraping. We all want safety and soundness, but we don’t have that right now in the system.
My concern is capacity for you to move quickly enough. We’ve had a struggle with payments modernization since 2016 in this country. We need to be fast enough to deal with the real risk on the table today. How are you going to be working to build capacity outside of the FCAC, for example, in accreditation of the players in the market? How are you going to lever resources and expertise outside of the agency while you get this moving?
Mr. Liedtke: Thank you for the question, senator. That certainly will be a challenge.
There is a clear understanding that we will require different skill sets. As we target the hiring of the senior deputy commissioner, ideally we’ll have somebody with those skill sets. Yes, we expect that even the supervisory aspect of the structure will supervise differently than we do today. We’ll have to be aware of that, and we’ll have to target and search for those skills and the accreditation, as you said.
Some of these elements are still being developed by the Department of Finance, particularly related to accreditation and security. The regime will be defined. We know we’ll be involved in accreditation, but will there be other partners? Will there be certain standards? That will have to be developed in the framework.
I do take your point, senator, that we’re going to be hiring different skill sets. That’s why we’re getting on top of the creation of the entity and bringing in search firms to help us target and find those people rather than just using normal postings of jobs.
Senator C. Deacon: We spent a lot of time yesterday on the issue of governance and the concern about having balanced governance, specifically as it relates to the group that will be managing the technical standard. You probably saw our testimony yesterday. Do you have comments as it relates to the importance of the issue of having balanced, independent governance so that the learnings here can move into open data and be beneficial, not siloed in FCAC?
Mr. Liedtke: Thank you for the question.
I believe you’re getting at the technical agency. Right now, the Department of Finance will be addressing who that technical agency will be. If you want more specific information, they’ll be better placed to address that.
Senator C. Deacon: There are advisory bodies that the senior deputy commissioner will be appointing?
Mr. Liedtke: The legislation will allow us to create the advisory bodies, which absolutely we will take advantage of, much like we do on the consumer protection side. We have an advisory council, and we expect to do the same with consumer‑driven banking to get that advice, particularly with the provincial and territorial jurisdictions.
Senator Petten: I was listening to what you said earlier and the stats that you quoted, particularly around what is open banking. Does that create a concern for you?
Mr. Liedtke: Thank you for the question, senator.
It absolutely does. That’s why we were pleased with the announcement of $1 million so that we could start developing that consumer awareness program now. We see this program being multi-phased and multi-year. Clearly, we have to start with getting basic knowledge out there. As the services come online, we want to make people aware of open banking, the central registry and what the issues are as it becomes enforced. That would be recurring.
In the final phase, we would continue to assess our consumer awareness campaigns to make sure that we’re targeting the right communities, the right people at the right time with the right messages. As you can appreciate, we’re a diverse country. Whether you’re a senior or a young person or a newcomer to Canada, your knowledge, awareness and needs of consumer‑driven banking will be different, and we’ll need to be targeting our messages accordingly.
[Translation]
Senator Gignac: Welcome to the witnesses. My question is for the Financial Consumer Agency of Canada officials. Thank you for what you are doing to protect Canadians. Since 2001, or for over 20 years, your organization has been protecting the rights and interests of Canadian consumers in relation to financial services. Some provincial organizations have the same mandate, including Quebec’s consumer protection agency, the Office de la protection du consommateur. As we know, some financial institutions are provincially regulated. Are you in contact with your provincial counterparts? Do you have annual or semi-annual meetings to share best practices? Could you tell us a bit about your relationships with your provincial counterparts?
Mr. Liedtke: Thank you for the question, senator.
[English]
The answer is yes, we do. I’ll ask my colleague Mr. Lofranco, who is directly involved in those relationships, to provide a bit of information.
Frank Lofranco, Deputy Commissioner, Supervision and Enforcement, Financial Consumer Agency of Canada: We work closely with our provincial counterparts. Often it’s through the process of consultation with a view to providing alignment in terms of how we supervise entities with respect to market conduct and consumer protection. A good example would be the coming into force of our Financial Consumer Protection Framework, which came into force two years ago. In the development of that framework, we worked closely with our provincial counterparts to ensure alignment around the expectations we were creating for federally regulated institutions and to ensure there was alignment with what the provinces were doing with respect to the entities that they supervise.
In addition to consultation and alignment, we have regular touch points with them. On a regular basis, we discuss emerging trends. It could be in relation to issues like crypto-currency, fraud or issues around mortgages. Those conversations happen regularly, and they continue to happen.
In recent weeks, we’ve begun to have conservations about strengthening those relationships in a formal way to enable information sharing to help guide our activities and responsibilities. In summary, I would say the relationships are healthy.
[Translation]
Senator Gignac: Thank you. In October 2023, the Government of Canada designated you as the single external complaints body for banking. If we move ahead with the bill and the credit unions or Desjardins joins the framework, does that mean that Quebecers’ complaints to the Office de la protection du consommateur will then be directed to your agency? In the case of consumers who deal with a provincially regulated financial institution, will complaints have to be addressed to you going forward if the financial institution joins this framework?
Mr. Liedtke: Thank you for the question, senator.
[English]
Those aspects of the framework are still being developed. Under BIA 2, the Department of Finance, and we will support those consultations with them, are engaging in the provinces to address the accreditation, liability, privacy and security issues. That framework has yet to be finalized. The current framework that you see in the bill provides the opportunity for provincial entities to opt in, in which case there will be certain elements, such as security, that they’ll have to maintain, but they’ll still follow provincial jurisdictions. The details of how that relationship and how those complaints will be handled is still to be determined for the next phase of the analysis of the framework.
[Translation]
Senator Bellemare: I’ll ask my question in French. You can answer in the language of your choice. Based on the answers I’ve heard to the questions I had, I am more and more concerned. I see that you have consumer-related experience, but I gather that you have little experience in dealing with financial institutions. This is a significant bill for open banking. Considerable consumer protection obviously has to be built in, but there is also the entire matter of accreditation, especially for fintech companies. As you said, you will need to acquire a whole new skill set.
Why did you offer to take this on, or were you asked to take it on? The second part of my question is for Ms. Kinoshita. What role will Payments Canada play in the framework that will be designed over the coming months?
Mr. Liedtke: Thank you for the question, senator.
[English]
I’ll answer the first part first. FCAC has a large amount of experience with financial institutions. We regulate a number of financial industries, including the banks, trust and loan companies, insurance companies and payment card networks. Our supervision enforcement branch is in constant contact, and we have ongoing relationships. We meet annually with the bank governance boards. We do have a lot of experience with financial institutions.
With respect to the second part of your question on accreditation, our role will be to enforce the standard that will be identified in the act, and then we will provide accreditation to those entities that meet the standard. We feel that once a standard is there, with our experience right now in supervising, how we follow the Bank Act and how we work with institutions to follow our guidelines, it will be similar types of skill sets. We feel comfortable that, while we were asked to provide this, we will be well positioned to perform this role.
Ms. Kinoshita: Thank you for the question, senator.
With regard to what role Payments Canada will play as it relates to the framework being developed over the next couple of months, as I mentioned, we’re happy to provide consultation on behalf of our members and our stakeholders and working closely with FCAC. We take our direction from the minister and work closely with the Department of Finance. In that regard, we will be constantly mindful of the evolution of the framework.
The initial framework contemplates read access only, if you will, so information. We anticipate and hope, as it evolves, that payment initiation will be forthcoming, but we understand the need to walk before we run. It will be with that anticipatory evolution of eventual write, if you will, payment initiation capabilities, that we’ll be working closely with FCAC and the department.
Senator Yussuff: Thank you, witnesses, for being here.
I’ll start with you, Ms. Kinoshita. Credit unions are quite happy to become part of Payments Canada. They don’t have to deal with surrogates anymore; they can deal directly with you. I assume that will be a significant saving for credit unions and their members to a large extent. Have the conversations been robust in terms of preparations and eventualities? Every credit union is different. Capacity and size are very different in this context. Maybe you can shed some light in regard to the conversations that have been happening.
Ms. Kinoshita: Thanks very much for that question, senator.
Very much so. We are very cognizant in terms of the different needs of credit unions. We’re highly engaged with the centrals and with credit unions directly. In fact, just yesterday, my colleague Lisa was interacting with the provincial regulators as it relates to helping credit unions in terms of their direct participation. We try to provide as much information as we can so that the credit unions and the centrals can make the best decisions in terms of their best paths forward to directly participating in our systems and/or coming in indirectly. We welcome either.
Senator Yussuff: Do you have a general sense of the savings they might be able to appreciate as a result of not having to go through the banks to do this anymore?
Ms. Kinoshita: Thank you for the question.
It’s a balance, and perhaps Lisa is better able to answer the question. It’s always a balance between size and scale to realize savings, because there are other obligations that need to be adhered to in coming as a direct participant.
Senator Yussuff: From where I sit, $1 million doesn’t seem like a lot of money, given the enormous responsibility you’ve been asked to take on. You’ve named two positions you’re going to be filling, a commissioner and a deputy commissioner. Is that all the staffing needs required to meet your new responsibilities and obligations in terms of resources?
Mr. Liedtke: Thank you for the question, senator.
I’ll answer the second part first: No.
On the first part, the $1 million is for the rest of this fiscal year for the preparation of our new responsibilities. One of the activities we’ll do is identify what the structure will be and the other funding. We’ll have a separate funding request for the long-term sustainment of this activity. The $1 million is just to help us prepare for that.
Senator Yussuff: Very quickly, listening to consumers and general news when they get coverage on national media, they’re not exactly pleased with the job you’re doing currently in regard to their experience with banks. I will be very direct. Should we have any more confidence in regard to this new responsibility, given that you are now covering a broad spectrum of all financial institutions across the country? I am sympathetic to an old grandmother or other individual who feels fraud has been committed and that the banks are stalling and doing what was necessary to ensure it was not their fault, and they should remedy this. My question is, is there a reflection to see how you can do a better job going forward?
Mr. Liedtke: Thank you for that question, senator.
I will ask Mr. Lofranco to talk about the fraud piece, but I am very confident that we can take on this role and responsibility. As I said, particularly at the beginning, the consumer awareness portion will be very important. The structure will be very different. It is about how we will accredit organizations so they have the ability to share information so that Canadians will be able to use the current services and expand their requirements. It’s not as much about individual services that are being provided — our marketing products, because we will see how that goes — but it tends to be more a direct service as opposed to their marketing 50 different types of services.
The Chair: Mr. Lofranco, very quickly, please.
Mr. Lofranco: Thank you for the question.
I would start by reminding the committee that, two years ago, a much stronger financial consumer protection framework was put in place that brought in 60 new standards for consumer protection that banks and other federally regulated institutions would have to respect and be compliant with. Some of those features include things like complaint handling and the offering of appropriate products and services — meaning appropriate for the financial circumstances of the consumers they are dealing with.
I use complaints as an example. The standard brought forward is the time in which a bank would have to deal with a complaint, from what was an average of 90 days or longer within the industry to a 56-day requirement to deal with the complaint. That has been in place for a couple of quarters, and that data is reported to us. I can share with this committee that, in the case of our largest banks, more than 90% of complaints they are handling are being dealt with within 56 days. Obviously, if consumers are not pleased with the resolution of those complaints, they have the opportunity to escalate it to an external complaints body.
The Chair: We have to leave it there because we are over time, and I’m trying to include all the senators.
Senator Varone: Thank you for being here.
I will pick up where Senator Yussuff left off. Inasmuch as I am in favour of open banking, some of the comments that were made today were about the instantaneous movement of money through payment services. Artificial intelligence is already here. Quantum computing is around the corner. Bank fraud is going to proliferate. Make no mistake about it. Quantum computing will make encryption code mincemeat. Are you ready?
Mr. Liedtke: Thank you for the question, senator.
You offered a very broad subject. No, I don’t think anybody is ready with respect to the way you have characterized the question, but that’s why we have the phased approach to bringing in consumer-driven banking. We are just talking now about the data sharing aspect and doing it in a slow and deliberate manner, which would ideally allow the government and the Department of Finance time to build a strategy to mitigate those risks as we fully implement open banking.
Senator Varone: Let me be more specific. Cheque fraud already exists. If the movement of money only takes seconds, 56 days to resolve that issue on average is too long. How do we shorten that gap?
Mr. Lofranco: I appreciate the question.
Many emerging trends are creating risk. Fraud and scams are particularly noteworthy and are increasing in size and sophistication. There is some work to do in that regard.
From the perspective of the FCAC, we have some current expectations on how institutions deal with fraud and scams in that they are required to investigate the issue. There are liability protections as they relate to credit cards and debit cards — protections for the consumer. At the same time, in situations in which a customer unknowingly made data or information available, there is the expectation that the customer not be held liable. There has to be gross negligence on the part of the customer for the banks to find that customer responsible for the fraud that they have been a victim of.
It is a sensitive issue. We work from a supervisory perspective and also from the policy and research perspective. I would say that we are very much in contact with institutions, the Department of Finance and other regulators in our federal family to tackle the issue. But it is growing in size and risk. At the moment, we are leveraging the authorities within our act to ensure banks are doing right by their consumers, but there is more to be done.
Senator Ringuette: Thank you for being here.
I was here when the agency was created. Over the years, through this committee or the National Finance Committee, I slowly got to know what you were doing or not doing. That leads me to the fact that your first mandate was to create consumer awareness campaigns in regard to financial products. If you look at the scenery right now nationally and the scenario with payday loans, I would say that your consumer awareness campaigns were not that successful.
Basically, you are a marketing agency for this consumer awareness campaign. I have extreme difficulty in seeing your agency being an enforcement body. You are not geared to that. You’ve not been geared toward that for the last 20 years. I do not believe that one or two new persons will provide consumer protection or the supervision of making sure that the qualifying banking authorities meet the OSFI standards of banks so that consumers are protected in that way too.
This is a complete puzzle to me. How are you going to go from complete left field to complete right field in the space of six months?
The Chair: You have about a minute to deal with that. Thank you.
Mr. Liedtke: Thank you for the question, senator.
I’m not sure that I am in complete agreement with a lot of observations. We are not a marketing firm. With respect to the payday loans, it is under provincial jurisdiction, but we’ve done an effective job trying to advise people about the risks. Our national financial literacy strategy uses an ecosystem approach, by which we use stakeholders, governments and the banks to support our messaging.
We don’t have time, but Mr. Lofranco would talk about how we have been supervising regulating. We have ruled and administered monetary personalities, so we are taking enforcement action. I can’t speak to the first 10 or 15 years, but for the last 5 years during which I’ve been with the agency, we’ve been exercising our supervisory power. That power is not only in penalties. It’s also in influence by having consultations with the banks and having them do action plans and right things before they lead to an enforcement action.
The Chair: Thank you.
Senator Massicotte: I would echo the previous comments. I have dealt with the agency a little bit. People complain, and we do research for them. It was a disaster. In the real world, it’s tardy. It probably had a bias toward the banks and not the customer. As if you don’t have enough problems, I wanted to make sure you understand what the problems were. Thank you.
Senator Loffreda: Instead of creating a new senior deputy commissioner position, why not make the existing Financial Consumer Agency of Canada Commissioner responsible for consumer-driven banking? I am the sponsor of this bill, and maybe you can elaborate on this. Is it because that there is some concern around credit unions that are regulated by provincial governments at this point in time? The senior deputy commissioner would be responsible for these activities under open banking rather than having —
The Chair: We need an answer here, Senator Loffreda.
Mr. Liedtke: Thank you for that question, senator.
I believe you have it right. Creating a separate entity under the senior deputy commissioner would provide the flexibility to address the provincial jurisdictional issues that are being negotiated because we now have a clear separation between our normal market conduct operations and consumer-driven banking.
Senator Loffreda: Rather than have a federal market regulator — provinces and the provincial governments.
Mr. Liedtke: Right.
Senator Marshall: Ms. Kinoshita, when you gave your opening remarks, you said that you were “following developments.” I got the impression that you feel you are not participating. Do you feel you are involved enough in the development of the framework, or do you feel that you are more on the outside looking in?
Ms. Kinoshita: Thank you for that question, senator.
I would frame it in between the two positions you proposed. We work very closely with the Department of Finance. The framework is outside our purview as it stands today because it is data-read only, but we do know consumer-driven banking will evolve into payment initiation. We feel engaged, involved, heard, consulted upon and we have had input, but we understand as well that the immediacy of what is to be delivered in the short time frame is not “Right Pay” initiation capabilities.
Senator Marshall: You are satisfied at this point in time?
Ms. Kinoshita: Absolutely.
Senator C. Deacon: Thank you all for being here.
Ms. Kinoshita, real-time rail has seen repeated delays since 2019. It’s kind of like the sign in the British pub, “Free beer tomorrow.” We’ll get real-time rail tomorrow, but tomorrow never comes, at least for now. This is a rate-limiting step in the progress of our financial system in our country. When will Payments Canada be ready to implement write capabilities?
Ms. Kinoshita: Thank you for the question, Senator Deacon. I have always appreciated your support.
I am happy to say we are confidently on a path forward. We will be ready for write capabilities and well before that. As you know, we’ve had some delays in the past. In the past six months, we’ve gone through several reviews in terms of mitigating any further delays to the RTR. Those included a risk-review phase, a deep dive in terms of alternative options and a “decision-ing” phase. Throughout these three phases, we fully included the ecosystem, including industry, stakeholders, regulators and members. I am happy to say that the path we’ve chosen to go forward to deliver well ahead of write capabilities has everybody aligned. What is different this time around is that when you have all oars moving in the same direction and helping RTR get over the finish line, we will be successful.
Senator C. Deacon: When will “write” capabilities be available for implementation?
Ms. Kinoshita: Thank you for that question.
Regarding the Real-Time Rail capabilities, we will be in integration testing with our members in 2026. They are fully aware and are fully gearing up for that. I can’t comment on when “write” will be embedded into the open banking framework. I will leave that to the FCAC and the Department of Finance.
Senator C. Deacon: You will be ready in 2026?
Ms. Kinoshita: We will be ready.
The Chair: Thank you all very much. I am sorry for the time crunch. It happens every June when governments want legislation passed yesterday. We’re going as quickly as we can. Thank you for your contributions today.
We will move now to our second panel and welcome Alexander Vronces, Executive Director, Fintechs Canada; Bernard Brun, Vice President, Government Relations, Desjardins Group; and by video conference, Steven Boms, Executive Director, Financial Data and Technology Association of North America. Welcome to you all and thank you for participating today. Mr. Vronces, we will begin with your opening remarks.
Alexander Vronces, Executive Director, Fintechs Canada: Thank you for the invitation to speak before you today.
Fintechs Canada is an industry association of Canada’s most innovative financial technology companies. Our mission is to make Canada’s financial sector more responsive to the needs of Canadians.
Economic growth has slowed. Life is increasingly unaffordable. Canadian productivity has reached “emergency” status. It’s the responsibility of policymakers, elected officials and senators to do everything in their power to respond to the moment. One of the things that needs to happen right now is this: We need more competition in the banking sector. That means passing, without delay, the consumer-driven banking act as well as the changes to the Financial Consumer Agency of Canada Act in Bill C-69.
The banking sector affects us and everything around us every day. Banks are not just vaults for our money. They help us grow our wealth by managing our money. They also help us buy and sell things online by issuing payment cards and other things.
In competitive markets, two things are supposed to happen: Prices are supposed to go down, and the quality of services is supposed to go up, all of which, together, makes life more affordable.
In Canada’s banking sector, prices are going up. Our banks are making more and more money from non-interest income — in other words, the fees they charge Canadians: service fees on bank accounts, investment management fees, payment processing fees, administrative fees on mortgages and other loans. In fact, Canadians pay higher banking fees than their peers in similar countries such as the United Kingdom and Australia. It’s hard to say that the quality Canadians are getting has changed in any way. What’s really changed lately about your banking experience?
The lack of competition in banking also puts a damper on Canada’s productivity. Banks are supposed to be a source of financing for Canada’s businesses who need access to capital to grow and make the economy more productive. But increasingly, banks are not. OECD data show us that, compared to their peers in other countries, Canadian businesses receive less financing and pay more for it. According to the CFIB, 15 to 25% of loan applications end up being rejected by the big five banks. In fact, over the past 10 years or so, the total number of loan applications approved for small businesses decreased by almost 30%, and that’s while demand for loans has increased.
The lack of competition in banking costs us not just as customers of banks. It costs us all as Canadians. This is why we want to see the consumer-driven banking act as well as the amendments to the Financial Consumer Agency of Canada Act pass without delay. Together, these will set the foundation for the government to give consumers and small businesses the right to share their financial information with organizations of their choosing. It will also afford protections to Canadians — consumers and small business owners alike — so that they’re not left holding the bag when things go awry.
As the government implements this framework, we think it’s important for the government to more explicitly recognize the importance of competition and innovation in financial services. A few years ago, the White House issued an executive order that would get the whole of the U.S. government to promote more competition in the American economy. Not long after, the American consumer protection regulator put out a draft rule to jump-start competition in American banking. We need to get going. This foundational legislation needs to pass; otherwise we’re continuing to talk about what other countries have already done to make their banking sectors more competitive, life more affordable and their economies more productive.
Thank you, again, for the invitation to speak before you all today.
[Translation]
Bernard Brun, Vice-President, Government Relations, Desjardins Group: Members of the committee, thank you for inviting me to speak today. My name is Bernard Brun, and I am Vice-President of Government Relations at the Desjardins Group. The Desjardins Group is the largest cooperative financial group in North America and the seventh-largest financial institution in Canada, with close to $423 billion in assets.
To meet the diverse needs of our 7.7 million members and clients across the country, we are active in the following areas: personal and business services, wealth management, personal insurance and damage insurance.
The Desjardins Group supports initiatives that will help better serve its members and clients, as well as all Canadians. The objectives of the Canadian Consumer-Driven Banking Framework, a.k.a the open banking system, as presented in Bill C-69, seem to move in that direction. Therefore, we support the implementation of a functional, realistic framework that will allow consumers to control how their data are shared.
Our current concern is that the proposed framework is not limited to making sure a common technical standard is adopted by all financial institutions in the country. It also establishes a single framework, mandatory for federal financial institutions and opt-in-only for provincial institutions.
As you have heard many times, this responsibility was given to the Financial Consumer Agency of Canada. This was largely for the purposes of consumer protection. The government itself admits that the area of activity covered is at the very least a shared jurisdiction.
Regulatory duplication between the jurisdictions would particularly disadvantage the members and clients of provincial financial institutions.
While opting in to the framework is technically voluntary for these institutions, they would have no choice but to join for competitive and risk management reasons. It is clear that the current bill has a major structural defect with wide-ranging consequences. It means that, in the context of consumer-driven banking, the financial activities of our 7.7 million members and clients could potentially be caught between entities operating in separate jurisdictions.
It is imperative that the government not make a false start in terms of consumer-driven banking, in order to ensure that the system is relevant for all consumers and the entire financial sector. When it comes to consumer-driven banking, we feel that the financial activities of our 7.7 million members and clients should not fall under separate jurisdictions.
In conclusion, a two-tier system will disadvantage consumers, limit competition and undermine the credibility of an initiative that is crucial for innovation and the evolution of the financial system.
The Desjardins Group supports the implementation of a framework, but not in the way it is presented. We are asking for significant changes.
We are asking the government to remove Division 16 of Part 4 of Bill C-69 so that the proposed framework can undergo an in‑depth examination. That will allow all affected stakeholders, provincial authorities and provincial governments to come to an agreement on a vision and a common understanding of the system to be put in place.
[English]
The Chair: Thank you very much.
Mr. Boms, you have three minutes. Thank you.
Steven Boms, Executive Director, Financial Data and Technology Association of North America: Thank you very much for the opportunity to appear today on behalf of the Financial Data and Technology Association of North America.
We are the leading trade association advocating for consumer‑permissioned access to financial data in both Canada and the United States. Our members include firms with a variety of different business models that collectively provide more than seven million Canadian consumers and small-and-medium enterprises, or SMEs, with access to vital financial services and products.
We are strong advocates of Canada’s implementation of an open finance regime, and I was personally pleased to appear before this committee in March 2019 as part of its study on open banking. I congratulate the committee on many of its recommendations being reflected in Division 16 of Bill C-69. The core idea of open finance, of course, is that a Canadian consumer or SME should be able to safely and securely access their data held at one provider and share it with another provider that offers a better financial product, service or tool.
FDATA and its members strongly support the framework for open finance set forth in Bill C-69, which reflects years of thoughtful consultation with industry. The framework will begin the process of affording Canadians these rights and facilitating a more innovative and competitive financial services sector. Division 16 of Bill C-69 will provide consumers with a legal right to access and share access to their financial data held by federally regulated financial institutions in chequing and savings accounts, investment products and lending products, including credit cards, lines of credit and mortgages. As well, as we have been discussing, it will provide the Financial Consumer Agency of Canada, or FCAC, with the authority to govern the system.
FDATA would recommend several important amendments to Division 16 to ensure that the legislation aligns with both our understanding of the department’s intent and best practices from other jurisdictions that have moved more quickly than has Canada.
First, we suggest that the bill clearly and unambiguously include SME accounts as covered in the scope of the first phase of open finance. As the department and other stakeholders have consistently asserted, there are significant benefits afforded to SMEs when they are afforded control over their financial data and empowered to utilize third-party tools to manage their finances. The legislation should explicitly make it clear that SME accounts will be included in the regime.
Division 16 should also be amended to afford the FCAC the statutory authority to oversee not only businesses’ interactions with consumers but also their compliance with the laws and regulations in regard to their interactions with one another. Absent this important addition, it is not clear that the FCAC would be permitted to enforce any requirement that, for example, a federally regulated financial institution’s secure data gateway must reliably be accessible by an accredited third party — another business.
Finally, we suggest several amendments to ensure due process and good governance as the FCAC takes on this critical, expanded role.
In sum, our proposed amendments would create more transparency in the governance process and mitigate the risk that smaller entities might decide not to participate in Canada’s open finance system. Each of these amendments would more closely align Canada’s open finance framework with the best practices we have seen established by many other jurisdictions that have more quickly deployed open finance.
We respectfully ask for the committee’s consideration of these changes and appreciate the opportunity to share our perspectives. Thank you.
The Chair: Thank you very much.
We’ll begin our questioning. I will just remind everybody that the longer your question, the shorter the time for the witnesses to answer. Please keep that in mind. Also, please address your questions specifically to an individual because we have someone on Zoom.
We will begin with our deputy chair, Senator Loffreda.
Senator Loffreda: Thank you to all our witnesses.
[Translation]
My question is for Mr. Brun. Thank you for being with us today. A senior deputy commissioner will soon be appointed. The main objective is to avoid having credit unions regulated by provincial governments put under the direct supervision of the federal regulator for market conduct. That is why a senior deputy commissioner is being appointed. Why are you not satisfied with this procedure? We’ve been studying open banking for a very long time, so it’s pretty bold of you to ask that the entire division be removed.
Mr. Brun: Thank you for giving me the opportunity to answer that. As you say, it may seem a little surprising to ask that the division be removed, but I think we need to get back to basics. We need to avoid a false start at all costs. Everyone agrees — and the government can confirm — that we need consumers to be strongly on board to give the system momentum. That way, the open banking system, or consumer‑driven banking, can truly develop.
There have been discussions about the governance framework for years, but in fact, there has been no mention of the entity that would be granted the responsibility. That is something that happened very recently when the budget was tabled, which is when the jurisdictional issues were raised.
We do not want a two-tier framework where some financial institutions would be subject to a framework and others wouldn’t. They have a choice to opt in or not, but they would still be subject to it. The government also said that the provincial framework would continue to apply. You can see the problems this addition of rules would cause us. There would likely be a crisis of confidence among consumers, and, all in all, the objectives would not be reached for the government or consumers in general.
Senator Gignac: Welcome to the witnesses. I would like to follow up on my colleague Senator Loffreda’s questions to the Desjardins Group representative. I believe you heard what the Financial Consumer Agency of Canada officials told us earlier. I asked them a very specific question: What will happen to the Quebecers who are customers of the Desjardins Group? You are the largest financial institution in Quebec. If they have complaints, can they still address them to Quebec’s Office de la protection du consommateur, or will they have to go elsewhere? Were you satisfied with the answer they gave? My understanding of the bill is that, if Desjardins opts in to the framework, it will have to follow the rules and let the agency handle any complaints. Did I misinterpret what they said? What are your thoughts on their answer?
Mr. Brun: Thank you for your question. Our understanding is exactly the same. Yes, they would be subject to the framework, but the provincial framework would continue to apply. That is a potentially dangerous duplication. There could be constitutional challenges. We feel that the possibility of full participation in the system is a major hindrance.
Senator Gignac: We need to be in problem-solving mode. We agree that Canada is lagging in terms of open banking. We need to move forward. The hitch is about governance, and we were all a little taken aback on that front. Have you thought about an alternative? Could it be the Interac model or a different one? Do we need to refer this to the Office of the Superintendent of Financial Institutions, which deals with provincial regulators and financial institutions? Have you thought of an alternative at this stage?
Mr. Brun: We do not presume to tell the government exactly where to go on this, but we have thoughts about it, as well as some suggestions. It is always important to get back to the objectives. The governance framework is the reason why we’re asking for the division to be removed. It is the essence, the basis on which we need to build the system.
Since there is shared jurisdiction, the federal government could simply establish a standard, leaving the respective jurisdictions to deal with consumer protection and all that implies. Once it goes further than that, there would have to be consistency and a recognition of provincial jurisdictions, which could align with the federal framework. Certainly, self‑regulation would resolve some of these issues, but we are in favour of a framework that would respect the current provincial regulators, which could align with it.
[English]
Senator C. Deacon: Thank you, witnesses, for being here.
I have a question for Mr. Vronces and Mr. Boms, if you could take a minute each to answer, and I will have a follow-up question.
The Finance Canada officials have run exemplary consultations. I’m not convinced yet they’re being heard at the political level. That concerns me about our ability to make consistent progress. A lot has happened in the world since our report. What are the key things we need to have at the top of our list if we put in observations on this bill to reinforce what we see as being key to making progress?
Mr. Vronces: Thank you for the question.
The big thing that stands out to us and our members is the fact that, in all these other jurisdictions we like to look at, it was competition and innovation that was animating policymakers and their decisions. It was animating the decisions of the political leaders who decided to act. In Canada, none of our financial sector regulators have a mandate to promote competition and innovation. In places like the U.K., open banking came out of a report that basically said the government needs to make banks work harder for citizens. In Australia, the ACCC has competition as part of its mandate. In the U.S., where the CFPB is leading the charge on the open banking role, they’ve put out in their storytelling around this that one of the explicit purposes is to promote competition in American banking. Canada is one of the only jurisdictions where that hasn’t taken hold, and I think it’s one of the reasons why this has lagged. One thing we would like to see is competition take centre stage in this conversation.
Mr. Boms: To add to everything Mr. Vronces said, which I agree with, I add two additional observations.
First, it is impossible to get it right the first time around, and we cannot let perfect be the enemy of the good. Canada has lagged behind every other jurisdiction. In every other jurisdiction, there has been a recognition by policymakers that there will need to be incremental changes made over time to make sure that the system is working as intended, to expand it and to make sure that it is delivering benefits to consumers it’s intended to do.
Second, governance matters quite a bit, and making sure that there is a strong, appropriate, fit-for-purpose governance entity that has the authorities required to bring the system to life and make sure it’s working the way it’s intended is critically important. It’s important to get that right at the outset.
Senator C. Deacon: Thank you.
If you have suggested observations you can get to us by the end of the day, I’d be interested in reading those, personally. Everything you said was said by the Competition Bureau, the first in Canada to push this issue. We have to get something on the table around those issues to make sure that Canadians are well served through this change. Thank you.
Senator Ringuette: I have two questions of Mr. Vronces.
How many members does Fintechs Canada have?
Mr. Vronces: We have just shy of 50 members.
Senator Ringuette: Fifty members? Okay. I suppose half of these would be partners with the Canadian banks right now?
Mr. Vronces: Yes. Our members include Canadian fintech market leaders, the ones you read about in the news: Wealthsimple, KOHO and Borrowell. We have fintech-friendly financial institutions like EQ, ATB and Peoples Group. We have the technology companies that power the credit union space, like Everlink, Celero and Central 1. We have global fintech companies like Stripe and Block.
Senator Ringuette: My second question: You talk about a lack of competition. I would agree with you on that. In order to have a level playing field with regard to competition in the financial sector, do you not agree that all the fintechs who will want to participate in open banking will also have to adhere to the OSFI banking requirement so that Canadian consumers understand that their assets are secure? The only entity right now that can provide that kind of guarantee is OSFI. Would your members be regulated by OSFI in this competition work?
Mr. Vronces: Thank you for the question. It’s a really good one.
I sometimes laugh at the fact that we are one of the few industry associations that comes out and says, “Please regulate our members more.” We’ve been a very pro-regulation industry association.
In the case of our members, fintechs who don’t operate exactly like banks, OSFI has been decided by the government to not be their right home. Instead, what they’ve said is that if you’re a payments company, you’re going to be regulated by the Bank of Canada as a payment service provider. One of the requirements is that you safeguard end-user funds so that, if a company goes insolvent, the customer can still get their funds as if they are CDIC insured.
If the fintech does operate like a bank, they are going to have to get a banking licence. We have a member right now that’s very public about the fact that it’s going through the process to get a banking licence. Things are going very well.
We’ve come out in favour of stronger ALM laws.
Senator Ringuette: Should all of the fintechs who want to be participants in this open-banking concept not be under OSFI? You just mentioned you had global fintech operators. I’m all for competition, but on a level playing field and making sure that Canadian consumer interests are safeguarded.
Mr. Vronces: In a world where the company is taking deposits and giving out loans, they should definitely be regulated by OSFI, but in the case of handling financial information, the risks are different. A different regulator makes a lot more sense.
Senator Bellemare: My question is for Steven Boms. I just read that you wrote in a Q and A that governance, as you said already, is the essential building block of Canada’s open-banking framework. You said that you had a strong neutral governance entity, and that clearly defined responsibility will ensure not only that Canada’s open banking regime launches successfully but that it can evolve into an open finance framework over time. Do you think the bill is in line with what you said and how your amendments would go to improve the governance issues?
Mr. Boms: Thank you, senator, for the question.
As I said in my opening remarks, we do think there are some amendments necessary to have the FCAC fit for that purpose. At a high level, they would, for example, require a stronger, more transparent process for what enforcement looks like under the FCAC’s process here. We have concerns that, as written, the bill has punitive penalties in it but no assessment of what penalty is levied for what offence, and that could scare smaller innovative companies away from entering the system, as one example.
Another example is, as I mentioned, the governing entity needs to not only protect consumers — that is an important part of its work — but also be able to call balls and strikes. If part of the requirement is that a federally regulated financial institution must share data it holds about me with my consent, then the government entity needs authority to step in and say that that financial institution’s API is not running as reliably or consistently as it is meant to be under that system. Providing those types of additional authorities clearly and unambiguously is important.
Finally, there needs to be due process as well. For a fintech or a bank that is levied with a penalty, to have them be able to demonstrate without litigating that they have not been guilty of the offence of which they are being accused is important, and it needs to be easy enough that smaller companies are able to manage that process without undue compliance.
Senator Bellemare: Do you think OSFI would be a better body to welcome the open banking system that’s proposed, the framework?
Mr. Boms: Thank you for the question, senator.
We do not. In the interests of transparency, we argued during the department’s consultative process for an entirely new fit‑for‑purpose entity, recognizing that there is no entity today in Canada that has all of these tools and expertise. However, the choice was made to go with the FCAC, so our amendments are meant to try to ensure that the FCAC has the tools and the process in place to be that fit-for-purpose entity.
Senator Bellemare: Thank you.
[Translation]
Senator Massicotte: Mr. Brun, we have a lot of sympathy for your argument, which seems very logical. What does the government say to these comments? What are its reactions? When you say it doesn’t make sense, what do they expect?
Mr. Brun: I understand we’re talking about the federal government.
Senator Massicotte: Yes.
Mr. Brun: There is some surprise on their part. I think they’re making an act of contrition by saying that we need to talk more with the provincial counterparts. So we’re asking for a pause, to allow them to discuss things together to make sure we have a fully coherent framework. We can’t afford to have a two-tier system, or for certain institutions to be excluded. I don’t think we need a lot of time. It’s not that much time, but we need to make sure they at least know what it’s all about.
Senator Massicotte: Are we talking about a delay of a few weeks or a few months?
Mr. Brun: In a few months, with goodwill, they can sit down together and really find the adjustments required to allow provincial entities to have the option of adhering to the federal framework by submitting to it completely, or remaining completely outside the framework by tolerating screen scraping.
Senator Massicotte: You talk about adjustments. Are they aware of the exact adjustments you’re proposing?
Mr. Brun: We’ll have to sit down with them to discuss it.
Senator Massicotte: Thank you.
[English]
The Chair: Do you have other provinces joining you in that request?
[Translation]
Mr. Brun: Again, I won’t speak for all the other provinces, but some concerns are shared by several provinces and regulators and most financial institutions, in my opinion. The proposed framework for the Financial Consumer Agency is far from unanimous. If anything, this choice is unanimously opposed.
[English]
Senator Varone: Thank you for being here.
Mr. Vronces, competition is the cornerstone of open banking, but section 77 of the Competition Act doesn’t necessarily prohibit tied selling in Canada. Tied selling, for my Senate colleagues, is a practice whereby a financial institution will give you a discounted credit card, but you need your auto loan and your mortgage to be with the same institution. In your opinion, does the Competition Act need to be strengthened in order for open banking to truly work?
Mr. Vronces: That’s a great question.
For a lot to work, the Competition Act has to be strengthened. We worked with policymakers when the act was being reviewed and made a number of recommendations.
I think the Competition Act and the Competition Bureau enforcement is an important tool. We also need to recognize there are limits to it in that it’s always retroactive. What Canada lacks that many other jurisdictions have is a more proactive approach to promoting competition and innovation. By providing a stronger Competition Act and a better equipped Competition Bureau with more proactive policymaking on the competition-promotion front in the financial sector, we can make a lot of progress and perhaps even be a world leader in this space if we put our heads down and just get to it.
Senator Yussuff: Thank you, witnesses, for being here.
Mr. Brun, I heard you say something, and I want to probe a little more. You spoke about self-regulation. Are you talking provincially or institutionally?
[Translation]
Mr. Brun: Thank you for the question, senator. When it comes to establishing standards, financial entities and institutions, both federal and provincial, have been talking together for many years precisely to establish standards and a certain way of doing things. For us, a mixed framework of self‑regulation to establish certain standards with supervision carried out by the competent authorities, whether federal or provincial, would have been the ideal solution, rather than having a single framework, as is being proposed, with an agency that has a very specific mandate and skills to develop — we’re talking about an agency that has no skills at all in this area.
[English]
Senator Yussuff: We’re in the infancy of trying to make this system competent and giving Canadians the reassurance that they would not have different treatment regardless the institution or the province they live in. Would you not see a need for consistency so that Canadians can have some certainty regardless, recognizing that some provinces might be much further along? We know the system in Quebec has been essentially a model that many provinces could adopt, but we’re not there and that’s not the reality of the country. I don’t see how self-regulation can be the model that we use, recognizing that consumers want to have some confidence right across the country that open banking will work effectively and that they will get the protection that we are promising them, given that the federal government is ultimately the interlocutor for the provinces to adhere to a certain system.
[Translation]
Mr. Brun: Thank you for the follow-up question. Indeed, it’s an issue we fully share. In fact, I think the minister mentioned the importance of a consistent approach for all consumers. Given that we live in a Canadian federation with a certain division of jurisdictions and powers, we believe it’s essential that the federal and provincial governments work together in the right way upstream. For us, it’s a question of governance, which is really the basis of an open financial services system that will work. Otherwise, in the current situation, we’re going to end up with certain standards that could be imposed at the federal level, and additional requirements that could be added by other authorities, quite simply by competing jurisdictions or powers that could be competing. This seems to us to be totally counter-productive. Consumers need to be able to choose a more global approach.
[English]
Senator Yussuff: I think we need higher standards right across the country to give consumers and Canadians confidence in the system we’re building. I think it will serve Quebec well, but I’m hoping it will serve Canadians well. I recognize the work that you have done has been tremendous with your particular model, but I don’t think it’s the only one.
The Chair: I want to clarify something with Mr. Boms. You did send a document yesterday to all committee members. Are your suggestions included in that document?
Mr. Boms: Thank you, senator. The answer is yes.
The Chair: That’s great. Thank you so much.
Mr. Vronces, most of your suggestions are there too in your opening remarks that you gave us today?
Mr. Vronces: In passing, as is.
The Chair: Again, we’ve got your recommendation, which is take 16 away.
We have time for a couple of follow-up questions.
Senator Loffreda: My question is for Mr. Vronces. You did mention that, at times, many loans for Canadians are refused.
Before I get to that question, talking about open banking, we have one witness, Mr. Brun, who wants us to remove it altogether. We have Mr. Boms who wants us to amend the budget implementation act, which in itself is an adventure. Forty-seven other countries have adopted open banking. We’re the last in the G7 countries. It will benefit consumers. It won’t benefit the banks or financial institutions. Margins will decrease, so it’s strictly for the benefit of consumers. There are 60 banks operating in Canada, and you did say there’s a lack of competition. I spent 35 years in the industry. I can tell you there’s a lot of competition. Mr. Brun beside you has 50% of the credit market, and the profit motive is not as aggressive as the Canadian banks.
If I look at the levels of household indebtedness in Canada, I don’t believe there’s a lack of competition in granting Canadians access to money. Do you feel open banking, given your words, will aggravate the situation? I just want to add something to that. Money is like any beverage. The first sip is great. The second sip, you start to feel it. After three sips, you get sick.
Mr. Vronces: Thank you for the question.
Will it aggravate the levels of debt in the country? I’m not sure it would. People find ways to make ends meet one way or another. Just because they don’t get it from a bank doesn’t mean they don’t get it from somewhere else, but I think I would rather live in a country where I can get financing from a bank rather than from a payday lender, just as an example.
There has been research done by economists around the world that found that when you have an open banking framework, not only does the probability of loan approval increase, but the interest rate on the loan goes down. I can send around a paper by an economist that looked at the market in Germany for lending once Germans were able to share their financial data.
I think it will help competition at the margin. Though the financial sector can feel competitive if you just look at the raw numbers, there are a lot of structural barriers in place that give advantages to the big five that others do not have. I think it’s reflected in a lot of the data. Canadian banks are consistently some of the most profitable in the world in good times and bad. Canadians pay more for bank accounts than their counterparts in other jurisdictions.
When it comes to accessing credit, banks, as a total percentage of their loans, loan less to small businesses than the financial sector in Italy, the U.S., France, the U.K. and Japan. The percentage of small businesses that need collateral for lending, which is often personal collateral like their house, is higher in Canada than in a lot of those countries. The interest rate spread between small businesses and large ones is higher in Canada than most of the OECD countries.
The Chair: We’re over time, so very quickly.
Senator Loffreda: We forget what the bank’s primary role is. It’s making sure that when you deposit your money, that money is still there for you to have. Their margins are 1%. They are not working with 20% margins.
My concern, based on your comments, is that if getting access to loans becomes that much easier, even for small businesses and businesses, the management will be a lot more difficult for our economy going forward. I feel there has to be some diligence in getting those loans. I just want to put that on the record.
[Translation]
Senator Gignac: In the securities field, in 2008-2009, the federal government wanted to create a single securities commission and had to withdraw. If you look at it, there’s a single self-regulatory organization that brings together the different players and the different provinces. Is this the kind of model you have, with federal-provincial co-operation? Do I understand correctly that there would be a greater role in a self‑regulatory organization where financial institutions under provincial and federal jurisdiction would work together?
Mr. Brun: Thank you for the question. Absolutely. Given the Constitution and the federation in which we live and which still exists, there has to be a certain amount of integration. Some provinces want to participate. The federal government will have a role to play, but there has to be a link between provincial structures, as in the case of Mouvement Desjardins, which must have its own fully recognized regulator, and not be sucked in by a new entity or a new regulator that will be in learning mode for several years. We need collaboration; they can work together to ensure we have the same standards, with levels of protection that are the same for all Canadians. Without that, it’s counterproductive. We’ll have a two-tier system.
Senator Gignac: There are also insurance companies, and some are also under provincial jurisdiction. Thank you.
[English]
Senator C. Deacon: Mr. Boms, just so my colleagues on the committee have real clarity about the risks around data sharing in read only, around payment protection, when you start right and get beyond that, and prudential regulation as we move along in progress and building competition, can you give us, from the perspective of the U.S., how those three distinct areas of risk are being managed and how they relate to Division 16 here?
Mr. Boms: Thank you very much, senator. Happily. I’ll try to do it as quickly as I can, even though it’s a very complex topic.
The U.S. consumer financial regulator is at the lead of promulgating government-driven, open banking in the U.S. That will be finalized later this year. It does not eliminate the need for federal banks and non-federal banks in the U.S. to still comply with third-party risk management requirements, prudential regulatory requirements.
One of the questions that has come up, particularly in the U.S. in the wake of the bank failures last spring, is whether open banking could somehow facilitate faster money movement out of banks during a run. The general view that U.S. regulators have taken is that it is ultimately the consumer’s money. Whether they walk into a bank branch, go to the bank’s online portal or use a third party to take that money out of their account, that is their legal right to do. This is just the evolution of how banks must manage liquidity in the 21st century, not dissimilarly from when ATMs were invented in the 1960s and promulgated in the 1970s.
Senator C. Deacon: Just to be clear, data management and the movement to payment modernization are different types of regulation than prudential regulation, correct?
Mr. Boms: That is absolutely correct, senator, yes.
The Chair: Thank you, gentlemen. Alexander Vronces, Executive, Director, Fintechs Canada; Bernard Brun Vice‑President, Government Relations at Desjardins Group; and Steven Boms, Executive Director at Financial Data and Technology Association of North America, thank you for your contributions today.
We will continue in camera.
(The committee continued in camera.)