TORONTO (Reuters) - Canadians are sharing their financial data with third-party providers “in a significant way” and need more secure infrastructure to protect them, according to a report on the first phase of a government review of so-called open banking released on Friday.
Canada’s Advisory Committee on Open Banking will begin a second phase of the review in the spring, according to a statement from the country’s finance department. It will focus on data security in financial services and its findings will be reported to Finance Minister Bill Morneau later this year, the statement said.
Open banking is the practice by which consumers allow third-party providers access to their financial data. The report refers to it as consumer-directed finance.
“In the last couple of years, open banking has really taken off,” said Bryden Teich, portfolio manager at Avenue Asset Management. “Now there’s enough head of steam for the government to come in and ... ensure they’re providing what they feel is the necessary regulation.”
While open banking regulations have already been adopted in places like the European Union, the United Kingdom and Australia, Canada has lagged.
Despite the lack of oversight, as many as 4 million Canadians use data-driven services to share access to their data, and the country risks losing significant ground on innovation and competitiveness through inaction, the report on open banking said.
“While there are risks, the Committee found that these risks exist in the current unstructured environment and implementation of a structured framework could serve to better address and manage them,” the report said.
A timeline of about one to two years is “reasonable” to deliver consumer-directed finance, it said.
The advisory committee recommended examining issues including consumer control of personal data, privacy and overall security in the second phase of the review.
It also urged the government to ensure consumers have control over the use of their data while making it clear where potential liability lies.
Reporting by Nichola Saminather; Editing by Alistair Bell and Tom Brown