The financial landscape in North America is undergoing a transformative shift. Open Banking, a global movement to standardize financial data sharing, is fundamentally reshaping our interactions with financial services, but will also prompt a closer look at personal data rights.
Despite North America's historical lag in Open Banking, recent regulatory developments, such as announcements from the US Consumer Financial Protection Bureau, indicate that the landscape is changing.
This article explores the evolving paths of Open Banking in Canada and the United States, which aim to boost innovation, competition, and transparency in their financial sectors. It also describes how financial data ownership may serve as a crucial step toward comprehensive data rights.
Canada, known for its robust financial system, has been cautiously approaching the implementation of Open Banking. Despite the government officially recognizing the merits of Open Banking as early as 2018, little concrete progress has been achieved. While other jurisdictions have made significant strides, Canada has been met with delays and deliberations, leaving many industry participants as well as consumers eagerly awaiting progress. In turn, this has led to pointedly negative press in major publications and criticism from advocacy groups.
The Canadian government's commitment to striking the right balance between innovation and security is commendable. However, the lack of a well-defined regulatory framework has led to a sense of frustration among fintech innovators, traditional financial institutions, consumers, and even within the government itself. On 9 November, the Conservative party tabled Members Bill C-365, the Consumer-Led Banking Act, to force the Liberals to finally deliver some form of Open Banking, as they had originally committed to doing by January 2023.
There is, however, a silver lining. The delay has allowed regulators and industry participants to learn from the experiences of other jurisdictions that have already embraced Open Banking. By observing successes and challenges elsewhere, Canada has the opportunity to develop a more robust and tailored framework that addresses its unique financial landscape, in particular as Open Banking initiatives begin to evolve into data rights initiatives. Given recent events, the US is likely to become one of Canada’s most important teachers.
By contrast, the United States has been focused on practical, incremental evolution to serve real customer demands for data-sharing capabilities. Despite the absence of a comprehensive regulatory framework, various institutions and fintech firms have voluntarily adopted Open Banking principles. Nevertheless, two recently proposed rules from the CFPB underscore a growing acknowledgement that regulatory involvement is critical in shaping the future of Open Banking, as well as the future of personal data rights.
A pivotal moment in the US Open Banking journey was the establishment of the Financial Data Exchange (FDX) in 2018. FDX, a consortium of financial institutions, fintech firms, and industry stakeholders, has defined market-driven Open Banking standards that today facilitate secure and transparent access to over 65 million consumer records, more than most regulated regimes.
However, one of the key learnings from other regions is that Open Banking is most successful when the market and regulators complement one another, a lesson the US has begun to apply. After years of relative silence, the CFPB started strongly signalling that they would introduce regulatory measures in late 2022 and throughout 2023, by activating a dormant provision under Section 1033 of the Consumer Financial Protection Act (also known as Dodd-Frank). This push culminated with the official release of a proposed Personal Financial Data Rights rule on 19 October 2023, explicitly aimed at accelerating the shift to Open Banking.
The proposed rule is ambitious in both scope and speed, applying to credit, debit, prepaid, and deposit accounts, with the largest institutions expected to be compliant within 6 months. With a focus on standardised access and security, as well as levelling the competitive playing field, the rule aims to improve consumer control over their financial data while also safeguarding their interests, fostering a culture of transparency, openness, and trust. Although limited to financial data, it is particularly notable that the rule is fundamentally about safeguarding data rights.
Then, as if to stress the point, the CFPB announced another rule on 7 November, proposing federal oversight of Big Tech companies. The rule aims to subject large players that provide financial services to the same supervisory processes as banks, setting the stage for a more accountable and transparent digital landscape, first in finance but potentially beyond.
An important note is that the move by the CFPB to regulate Big Tech is not directly linked to the proposed Personal Financial Data Rights rule. This signifies that the envisioned consumer control over financial data does not explicitly extend to Big Tech; nor is there any indication that those same data rights will extend beyond financial data.
However, once data rights are initially granted for personal financial data, and then applied to companies whose primary business models are built upon various forms of personal data, it raises a crucial question: if we have data rights for our financial data, why not for all our data?
This shift towards an expansive understanding of data rights not only aligns with international trends seen in Europe and Australia but now takes centre stage in the largest global economy, the home of the very companies that today control the vast majority of personal data worldwide. Altering their practices has the potential to reshape the very foundations of the internet itself, marking a deliberate shift towards comprehensive data rights.
The journey ahead will redefine the fundamental principles governing our digital lives. Open Banking is just the beginning, and North America stands poised to chart their course.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Eyal is also known as Mr. Open Banking, based on his podcast of the same name, where he interviews the key leaders, innovators, and influencers who are driving and shaping the emergence of Open Banking around the world.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now