20th May 2024

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Business Industry and Financial

Digital Innovation and Financial Services: What to Expect in 2024 | Knowledge

As we start 2024, federal regulators are heavily focused on digital innovation in the financial sector. The Fall Economic Statement contained long-awaited details on the federal government’s plan to establish consumer-driven banking (“Open Banking”) for the financial services sector. It confirmed that legislation will be introduced to establish the Open Banking framework in the 2024 federal budget. This was followed in December 2023 by a joint survey concerning Artificial Intelligence (AI) issued by the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC). Several OSFI consultations concerning crypto assets are also expected to land in early 2024.

Key Elements of Open Banking

Open Banking, also referred to as consumer-driven banking or consumer-directed finance, refers to frameworks that allow consumers and businesses to securely transfer their financial data through an application programming interface (API), in order to share it with an approved service provider of their choice. Examples include applications that build credit scores using transaction data, account aggregators that provide a comprehensive financial profile, budgeting tools, and platforms that give tailored financial advice.

The Fall Economic Statement was accompanied by a more detailed policy statement on Open Banking. It confirmed that the federal government’s policy objectives are: (1) ensuring the continued safety and soundness of the financial sector, (2) consumer financial well-being and protection, and (3) supporting economic growth and international competitiveness.

The policy statement also outlined five core elements for the Open Banking framework:

  • Governance: The legislation will identify a federal entity responsible for monitoring and supervising the new system, enforcing common rules, accreditation, and defining and updating technical standards.
  • Scope: The framework will undertake a phased development in scoping what entities can participate, the type/breadth of data that must be shared among them, and the system’s functionality, such as read or write access.
  • Accreditation: Recognizing the highly sensitive nature of financial data, the framework will ensure that only those entities who meet certain security and privacy requirements can participate in the data-sharing system. Accredited participants will be subject to ongoing mandatory reporting. Federally regulated financial institutions, as well as provincially-regulated credit unions, will be exempt from accreditation requirements.
  • Common Rules: To complement existing consumer protection and privacy legislation, additional rules governing liability, privacy, and security will be developed for financial data sharing, particularly around providing consumer consent to access. Liability is expected to “move with the data” and cease once the data leaves an entity.
  • Technical Standards: In order to transition away from less secure screen scraping, the government will mandate the use of a single technical standard that is aligned with international best practices. This will be done through software that acts as secure data “pipes” to enable products and services to communicate with one another.

We note that the policy statement did not provide substantial detail on the expected rules governing liability, which was a significant focus of industry consultations. It nonetheless promises “predictable and transparent rules outlining where liability starts and ends” to “provide certainty to participants and make it easier to protect consumers”.

Treatment of Crypto Assets

OSFI launched several consultations last year concerning crypto assets, such as stablecoins, which are expected to land in 2024.

In parallel with a similar international consultation by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board’s (FSB) focus on finalizing a global regulatory framework for crypto assets, OSFI is currently consulting on public disclosure requirements for crypto asset exposures held by federally regulated financial institutions. Comments are requested by January 31, 2024.

An earlier consultation on OSFI’s capital and liquidity approach to crypto assets closed in September 2023. The updated final guidance is expected in the first quarter of 2024.

Artificial Intelligence in Financial Services

In December 2023, OSFI and the FCAC launched a questionnaire asking financial institutions to share their plans, strategies, uses, and challenges with Artificial Intelligence/Machine Learning (AI/ML) applications. Following analysis of the results, OSFI and the FCAC will share current practices with participating institutions. Submissions are requested by February 19, 2024.

For a broader discussion on the impact of Artificial Intelligence on financial services, see our previous bulletin “Artificial Intelligence in Financial Services: The Canadian Regulatory Landscape”.

Looking Ahead

If the Open Banking legislation is included in the 2024 federal budget, additional details will be available when it is tabled in Spring or Fall 2024. If passed, the policy statement indicates that the federal government will continue stakeholder consultations and will look to fully implement the governance framework by 2025.

We anticipate that broader digital innovation will continue to be a high priority for federal regulators in 2024, including additional focus on financial institutions’ governance and risk management practices related to crypto and artificial intelligence technologies.


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