Banks & FinTechs: Canadian Regulators Weigh In

John Pecman, the Commissioner of Competition with Competition Bureau Canada?, delivered a speech yesterday.

The bureau has been studying the FinTech and its impacts on the financial services markets for almost a year now, he said. Referencing regulators' mandate to strike an appropriate balance between safety and consumer protection on the one hand, and competition and market growth on the other, the commissioner cited the opportunity FinTech entry into financial services markets presents for spurring additional competition and innovation in the market, like AirBnB did for hospitality, or Uber did for personal ride services.

This is why the Bureau launched a FinTech market study last May to explore the competitive impact that innovation is having on the sector and identify barriers to entry faced by new companies. We wanted to determine to what extent there is a need for regulatory reform to promote greater competition.

The explicit goal of the study was to explore how regulatory reform could be leveraged to "nurture an environment that allows Canada’s FinTech companies to innovate, grow and compete globally."

Open Banking is Referenced Explicitly 

Experts from the US and UK are cited by the commissioner, and the theme is clear: Canadian banks must embrace open banking, defined as:

Open banking enables personal customers and small businesses to share their data securely with other banks and with third parties, to manage their accounts with multiple providers through a single digital app, to take more control of their funds, and to compare products on the basis of their own requirements.

The UK experience is referenced in detail, including determinations that "people are paying more than they should" for financial services, and that regulatory reform will be implemented to level the playing field between legacy banks and FinTech startups, including explicitly exempting certain new markets like innovative payments from requirements for banking licensing, and encoding new regulations for new specialized markets.

"The UK’s experiences in implementing these changes will provide Canada with valuable lessons as we consider modifying our own systems to become more innovative and consumer-friendly", Pecman said, indicating that Canada will follow the UK's lead.

Place your bets!

I'm a betting man. Does anyone want to bet that regulatory reform in the UK will be entirely unsuccessful, and thus scare Canadian regulators away from pursuing similar reform here? Or that a more bank-friendly government will swoop in at the next election cycle and stave off reforms for us, like may be happening in the US today? I'll take that bet. What kind of odds to you want?

At the risk of wrecking the betting pool, here are my predictions.

Data Rights will be Enshrined in Regulation

Barring some kind of massive failure in the regulatory reform experiments underway globally, in Europe and Asia, Canadian regulation will change to explicitly enshrine consumer rights to grant access for FinTechs to link to their bank products - deposit accounts, credit accounts, lending accounts, mortgages, etc. Customers just want this and will demand it, as I mentioned in my last post on LinkedIn.

FinTechs will be Regulated, but Separately

Not just anyone will be allowed to link to your bank accounts. New regulations will be developed to govern FinTechs per market segment, possibly including additional licensing. But those won't be banking licenses. 

Banks are Getting Ready to Meet the Challenge

No doubt about it, we're going to be sharing our customers with more companies in the future, whether we like it or not. There is no point in burying our heads in the sand and hoping that it all goes away. That's why my colleagues and I are now taking proactive steps towards, as the commissioner puts it, "embracing open banking".

Efforts include collaborating with the regulator and FinTechs in studies such as the one commissioned by the bureau, actively partnering with FinTechs in advance of any new regulation, and as I am doing, laying new plumbing to ensure that when it comes time to link our customers' accounts to new FinTech services, we'll be ready to do it easily, and most importantly, safely, so that our customers are not exposed to undo new risk by taking advantage of new digital services.

It's an exciting time to be in banking, that's for sure. It's no longer the "quiet life" it once was, that's for sure.