The federal government will introduce legislation in the 2024 federal budget to establish a framework for open banking that will regulate access to financial data, according to Tuesday’s fall economic statement. The Department of Finance had promised in June 2022 to present a model of open banking by 2023.

“It’s been a long time coming,” said Nicholas Schiavo, director of federal affairs at the Council of Canadian Innovators in Toronto. “We’re already behind schedule.”

Open banking allows financial institutions, with consent, to securely share client account details with third parties such as other banks and wealth management firms.

A government-led body will supervise the open banking system, enforce its rules, accredit institutions and update technical standards. The Department of Finance aims to adopt the legislation and implement the governance framework by 2025.

Open banking, which will replace screen scraping, will be implemented in a phased approach. About nine million Canadians currently use services based on screen scraping to share data, according to the Department of Finance. The process requires users to share login details, which raises security risks to consumers.

In the initial phase, only federally regulated financial institutions meeting a certain retail volume threshold will be required to participate in the new framework where consumers can request data-sharing free of charge. Other federally regulated financial institutions and credit unions can opt in during this phase.

Some people might switch banks to take advantage of open banking provisions, Schiavo said. “Having the ability to control your financial data and have that data portability means there are other options on the table for you.”

When the new framework is in place, financial advisors will be able to see a client’s external accounts in real time, automating what are now manual inputs from customers, said Hwan Kim, a partner with Deloitte Canada in Toronto who specializes in the financial services sector. “Wealth managers will have a lot to gain as well.”

Access to banking data can make wealth managers more competitive as they’ll be able to provide more holistic advice, Kim said. However, gaining access to data requires a client’s explicit consent, so wealth management companies will need to build a compelling case that gives their clients value in exchange for that information.

To ensure people only share information with trusted parties that meet security and privacy requirements, the framework will require accreditation for companies in the sharing ecosystem. Exemptions will apply to federally regulated banks and federally or provincially regulated credit unions, but provinces will retain the power to impose their own requirements on provincial credit unions.

“The game’s just starting,” Kim said. “When I think about wealth managers and insurance companies, it all comes down to how quickly can you generate these digital propositions that incentivize consumers to share data with them.”