Opinion: Canada risks putting the cart before the horse on open banking

Bank towers are shown from Bay Street in Toronto’s financial district.Adrien Veczan/The Canadian Press

Canada’s open banking czar is feeling the pressure.

Abraham Tachjian is the man Ottawa has tasked with developing an open banking system slated for launch in 2023. As time is running out, he is speaking out with industry players on how to get the job done.

Open banking is a system that would allow consumers and small businesses to securely share their financial data between financial service providers such as banks and accredited fintechs. Also known as consumer-focused financing, it announces a promise to give Canadians more control over their financial data while making it easier for them to switch lenders, open accounts and use new digital tools to manage their money.

Banks, credit unions, and fintechs often have conflicting ideas about how to achieve these goals. But, interestingly, there is one issue they all seem to agree on these days: Mr. Tachjian needs to revamp his to-do list and move governance to the very top.

Don’t let your eyes glaze over when you read the G-word. Governance is about ensuring accountability and public trust in the future open banking system.

Specifically, Mr. Tachjian’s governance challenge is to create an organization that will oversee, implement and manage open banking across the country. It is important to note that this entity must be independent, accountable to the Canadian government and provide recourse to consumers and small businesses in the event of a problem.

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Financial service providers are getting nervous because Canada has yet to establish a governance model for open banking, even though the system is supposed to be operational next year. It’s a head scratcher to be sure.

Establishing a governance framework is usually the first step in creating a new organization or system. But this is Canada, folks. Our country excels at doing things in the wrong order and neglecting good governance. (Just look at how poor governance created the current crisis at Hockey Canada.)

Although Mr. Tachjian oversees the work of four open banking working groups (they make key decisions on accreditation, liability, privacy and security), this work will need to be reviewed if a governance body is established afterwards. This, in turn, will lead to further delays in the launch of open banking in Canada.

That’s why banks, credit unions and fintechs are pressing Mr. Tachjian for answers on governance. It is time for him to provide them.

For now, however, Mr. Tachjian is being cautious. He told attendees at The Globe and Mail’s open banking event this week that he was working with the Department of Finance Secretariat on the governance model “alongside” the four working groups. He also said a steering committee would meet later this fall to discuss the governance model in more detail.

“While political work on the future of the ongoing administration and governance of the system has been ongoing internally throughout this process, we have reached a point where we will redirect our focus,” Ms. Tachjian during his keynote speech at the event on Tuesday. “Once we land on these key questions, we will re-engage with the working groups and may convene additional steering group meetings as needed.”

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Great. But it’s still problematic that a secretive group of people worked out the governance of open banking in a back room. This lack of transparency is troubling.

To be fair, Mr. Tachjian seems to have found himself in an awkward position. As head of open banking, his marching orders are to create a “made in Canada” open banking regime based on the final report of the Open Banking Advisory Committee. The recommendations of this report clearly limit its ability to include industry players in governance discussions from the outset.

“The work of the head will inform the development of the governance entity, but the process to establish it will be separated to allow the head to focus on the rapid implementation of open banking,” the report said.

The problem is that this incremental approach does not make sense.

Of course, governance is a complex issue given the “divergent interests” of various industry players in an open banking system. But it was a mistake to allow the work on the governance model to take place independently of the four working groups. The governance model should have been established from the start to inform their work.

“Leaving governance to the very end never works very well,” Emma Purdy, senior partner and management consultant at Global Governance Advisors, told attendees at the same open banking event.

“It’s really about cooperation and collaboration,” Ms. Purdy said. “Governance needs to reflect this so that all interests are aligned.”

Governance in the context of open banking, she said, involves making decisions about both the operating model and the financial model.

Although the advisory board’s report says the governance body should include “balanced representation” of banks, fintechs and consumer representatives, it’s unclear who will pay for it.

If banks provide the bulk of the funding, will that translate into more votes? How will the entity preserve its independence? Will it have enforcement powers? Will fintechs and consumer representatives have enough influence on the board?

Canadians deserve answers.

Governance should never be reverse engineered. It is urgent that Mr. Tachjian and the Ministry of Finance bring this discussion to the fore. Otherwise, Canada risks putting the cart before the horse when it comes to open banking.