The CIO Strategy Council will release a draft of its minimum viable framework for consumer-directed finance by the end of 2021 or early 2022, BetaKit has learned.
But some involved in the process say it has become yet another venue for the ongoing power struggle between banks and FinTech startups over the future of open banking.
The forthcoming standard will address the consumer banking experience and is expected to be the first in a series of standards on consumer-directed finance.
âIn the current state weâre in, indecision is a decision and inaction is by virtue an action at this point.”
The standard is meant to help government âde-riskâ any future regulation, said Keith Jansa, executive director at the CIOSC, by drawing on the perspectives of industry, academia, civil society, and consumers to create a consensus-based approach. He said standards development bodies can also respond more quickly than government to an evolving technological landscape.
âOur intention here is to support and inform public policy and regulations,â he told BetaKit in an interview.
âIn the current state weâre in, indecision is a decision and inaction is by virtue an action at this point, given the fact that we are in a situation where you have Canadians using alternative banking services or financial services from other institutions that arenât your incumbents,â Jansa continued.
Industry standards created by the CIOSC and other accredited standards development agencies are voluntary. However, World Trade Organization provisions and the Treasury Board of Canada Secretariatâs policy on regulatory development require Canadian regulators to look at whether any international, national, or regional standards exist. If any do, regulators must either incorporate them or not regulate in a way that conflicts with them.
Jansa said heâs hopeful the forthcoming standards could be incorporated by reference into any future open banking regulation, and the CIOSC has been aiming to complete its work in line with the timelines laid out in the final open banking report.
Finance Minister Chrystia Freeland released the open banking advisory committeeâs final report in August, after months of delays. The report called for the government to introduce the first stage of open banking by 2023, and quickly appoint an open banking lead to oversee its development and implementation.
Despite the reportâs clear calls for action, the newly elected federal government has made no further announcements since. In October, The Logic reported that the Financial Data and Technology Association (FDATA) North America, Canadian Lenders Association, and Paytechs of Canada wrote a letter to Freeland calling for the government to clarify whether it plans to adopt the committeeâs recommendations.
Independent senator Colin Deacon told BetaKit heâs âa cheerleaderâ for the CIOSCâs work, and for what he called âstandards-based regulatory evolution.â Regulations are typically developed in a âblack boxâ in Ottawa, Deacon said, and shared through the Canada Gazette, a little-known government publication. By the time consultations begin, the government has usually already drafted regulation.
âI would just hope that government, and the minister, donât look at this when it comes out and say, âAha, this is proof the market is figuring this out.'”
âHaving regulations based on stakeholder-developed standards turns that process around, and puts the powerâŠin the hands of the stakeholders,â he said. “They can build the road and make sure the foundationâs in good shape, and then the regulators can come along and put up the speed limits and guardrails.â
Dana OâBorn, director of strategic initiatives at the Canadian Council of Innovators, said the councilâs FinTech members have expressed frustration Canada continues to lag behind other jurisdictions on open banking regulations, and called the CIOSCâs work the âfirst major step in creating some clear rules around what interoperability would look like for FinTechs in Canada.â
But according to FinTech startups close to the process that spoke to BetaKit, the CIOSCâs standards development process doesnât feel like a meaningful step forward. Instead, they said, it has been rife with struggles over their level of access in a future open banking system, and further underscores the need for government to move forward with regulation.
âI would just hope that government, and the minister, donât look at this when it comes out and say, âAha, this is proof the market is figuring this out,ââ said Steve Boms, director of FDATA North America, in an interview. FDATA has been involved in the standard development.
âIf anything, from my perspective, this is evidence the market canât figure it out and is bumbling along, trying to do the best it can in an ambiguous situation. Thereâs no reason the CIO Strategy Council should have had to take this on.â
RELATED: Tired of waiting, Flinks launches its own Open Banking Environment with National Bank
The CIOSC initially announced in February it would begin developing a standard, which Jansa said came after requests from stakeholders to dig into the issue. He declined to say which stakeholders requested the standards.
After an initial round of working group consultations in the spring, the CIOSC shared a first draft with the entire open banking group. A member of the Canadian FinTech community who reviewed the first draft described it as âhighly problematic,â and said it received an âoverwhelmingâ number of comments, which prompted the council to form a smaller technical committee in May and June to address them.
The first draft assumed a world where an open banking system would rely on banks to host authentication, consent and data transfer methods, they said, which would have given banks a competitive advantage over FinTech startups.
It also incorporated technological assumptions that donât exist in Canadaâs marketplace and relied too heavily on elements of Australiaâs and the United Kingdomâs open banking systems, which they claimed wouldnât work for Canada.
Another FinTech representative, who asked not to be named to speak freely about the consultation process, said the initial draft of the standard touched on limiting the scope of data needed for various applications, in an effort to get rid of screen-scraping, which gives FinTech startups access to all of their usersâ banking information but is highly insecure. The proposal was something that they said would give banks a competitive advantage but could hamstring the market in the future.
âHow do we know which data weâre going to need? The way I see it, weâre building the backbone of an industry that can grow for the next 10 years. Itâs not for me to say what data [future applications] are going to need or what consumers want in their financial data,â they said. âSo if we really want to end screen-scraping anyways, just make all data available.â
Another member of the FinTech community said they got the sense the CIOSC was taken aback by the level of disagreement, and questioned whether the standard would ultimately go anywhere.
Boms, too, said he wondered about the utility of the process, pointing out that the standard will be entirely voluntary. He said that while language in the final standard might ultimately recommend financial institutions make data more available to third parties, thereâs no obligation for banks to comply. If, on the other hand, the standardâs language is more favourable to banks, itâs âno different than the status quo.â
Jansa said disagreements between participants are very common in the standards development process, and disputed the characterization that the CIOSC was caught off guard.
âYouâre bringing multiple stakeholders together with different interests to provide input,â he said. âThe beautiful thing about standard setting is you have an ability to bring together [different perspectives]. But with a very rigorous, consensus-based process youâre able to work through those various challenges and oppositions and competing interests to effectively move the marketplace forward.â
âThese squabbles will continue to occur. Itâs been clearly stated by several of the banks that they still are the owners of [consumer] data.”
That can mean making compromises, Jansa said, and there may be components that are too polarizing to address immediately.
The tension makes it all the more important for people with vested interests to participate in the process, he said, so that their perspectives are incorporated into the final standard.
âIf we receive a bunch of input from one interest group andâŠit looks as though, âhey, the CIO Strategy Council is going that way,â itâs not a fair statement to say. All weâre doing is facilitating a process of bringing stakeholders to work through the various inputs that are coming in,â Jansa said. “Ultimately itâs not our decision as staff to decide what goes in or out of standards, itâs incumbent on our technical committee and stakeholders that want to engage.â
Itâs clear that Canadian FinTech startups are tired of waiting and watching what they feel is minimal progress. At the Open Banking Expo this week, Montreal-based Flinks announced the launch of its own Open Banking Environment (OBE) in partnership with National Bank. The OBE offers not only a data access alternative to screen-scraping, but also accreditation criteria for startups looking the access that data – something called for in the advisory committeeâs report but as of yet left undefined.
At the same conference, Roy Kao, open banking lead for CGI, claimed that whomever gets appointed as Canadaâs open banking lead will see the role âas a punishment more than a promotion.â One US-based startup with operations in Canada and Europe told BetaKit that the two-year timeline to implement a functional open banking framework seemed âaggressive.â
Former finance minister Bill Morneau advocated at the event for a market-led approach to open banking and encouraged banks and FinTechs to work together, warning that infighting would bog down the systemâs roll-out.
Deacon said he wasnât surprised the standards process has been the site of competing commercial interests, and said it highlights the need for the federal government to move on the issue.
âThese squabbles will continue to occur. Itâs been clearly stated by several of the banks that they still are the owners of [consumer] data, and until thatâs changed, they have no obligation,â he said.
âNo amount of private-sector effort will go anywhere without the minister [of finance] making a strong statement, and the opportunity cost of inaction continues to grow.”
Similar disputes over commercial interests are reportedly occurring in the Financial Data Exchangeâs API development work, and in individual negotiations between banks and FinTech startups or data aggregators.
Boms said FDATAâs members have been told by representatives of financial institutions not to put too much stake into the advisory committeeâs report.
âSomething that our members have heard quite a bit since the advisory committee report came out was, âThose are just words on a piece of paper. Theyâre not binding, thatâs not necessarily how this is going to shake out. So we donât put a lot of credence behind the committee report,ââ he said.
âIf thereâs no commitment from the government that says, âif the advisory committee report says this is the way to go, itâs how weâre going to do it,â weâre going to keep seeing these kinds of attempts to roll it back.â
Feature image source Burst