Finance Committee on Feb. 7th, 2019

[The Chair, Liberal, Wayne Easter]

Right now? Okay.

[An hon. member]

One minute.

[The Chair, Liberal, Wayne Easter]

Okay, we'll suspend for one minute.

[The Chair, Liberal, Wayne Easter]

We'll reconvene to resume debate on the motion by Francesco Sorbara, which everyone has before them.

I believe, Mr. Fergus, you had an amendment you wanted to add to it based on the discussion the other day.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Chair, thank you very much.

As you know, it's really almost impossible for me to fill the shoes of Francesco, but in a very weak facsimile, I will try.

[Kim Rudd]

Is that on the record so you guys can read it?

[Voices]

Oh, oh!

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I'd like to thank all members for seeking clarification and for their suggestions on how to improve this motion for the study.

There have been some changes to it, and I'll read it into the record:

That, the Standing Committee on Finance undertake a study on open banking and report back the House on: a) whether open banking could provide benefits to Canadians; b) how potential risks related to consumer protection, privacy, cyber security and financial stability could be managed; c) what steps, if any, the Government should take to implement an open banking system;

—and here are the new parts, Mr. Chair—

that the Committee dedicate up to four meetings to the hearing of witnesses in Ottawa; that the Committee examine opportunities to travel to jurisdictions that have implemented a framework for open banking, including the United Kingdom; and that the Committee report its findings to the House no later than Friday, June 7th, 2019.

Mr. Chair, one of the reasons.... As you know, open banking is a process that is currently under way, but the framework in which we should try to take a look at it, specifically on the questions of consumer protection, privacy, cybersecurity and the like, hasn't been fully developed.

We're sort of catching up, but it's important for us to have an opportunity for this committee, and hopefully for this Parliament, to set forth a proper framework to make sure that Canadians going forward, as this gains in currency, know that we've protected ourselves on this file very well and protected them very well by making sure that the system is sound.

To that end, not only should we take a look at what we're doing here within our own private financial sector, but we should also have the opportunity to take a look at what is going on in other jurisdictions that have had an opportunity to really set a better framework in place than what we currently have. We can learn from them and adapt that to our situation.

I'm hoping this motion will receive the approval of this committee. I think we can do some really good work, like we did on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which, again, I think was a remarkable cross-party effort to really come to the aid of Canadians.

I lay this on the table, and I move it.

[The Chair, Liberal, Wayne Easter]

You move this as an amendment, because it'll have to be an amendment.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I so move.

[The Chair, Liberal, Wayne Easter]

Is there any discussion on the amendment?

Okay, then we have Mr. Richards and Mr. Kmiec.

[Blake Richards, Banff—Airdrie, CPC]

Thanks, Mr. Chair.

I appreciate the attempts here to add a little bit of substance and some kind of measure to make sure this leads somewhere. That's great.

I'll comment first on what in it concerns me, and then what's not in it. I have a greater concern about that part of it.

First, I'll just touch on the travel side of it. I think that's maybe unnecessary. Well, it's not maybe: It is unnecessary. I don't mean to say that we shouldn't look at the experience of other jurisdictions, but is there really a need to travel to do this? I don't believe there would be, Mr. Chair. I think it could certainly be done by video conference and teleconference, and through reports that have been put out that have looked at what's been done, without our having to travel. That seems to be a bit excessive. I would have a problem with that.

More important is what's not included. As I'm sure most members are aware, the Department of Finance currently has consultations under way on open banking. The advisory committee on open banking that was set up in September of last year has been tasked with consulting on this viewpoint. This isn't to say that the finance committee shouldn't look at it as well; that's not the point I'm making here.

Let me just read the mandate that committee was given to look at, including the following:

[whether ]open banking [would] provide meaningful benefits to and improve outcomes to Canadians...[and] in what ways....

in order for Canadians to feel confident in an open banking system, how should risks related to consumer protection, privacy, cyber security and financial stability be managed?

and

if you are of the view that Canada should move forward with implementing an open banking system, what role and steps are appropriate for the federal government to take in the implementation of open banking?

This is obviously something that at least the department and, one would think, the minister would have some thoughts on already. There's no indication in this as to what sort of direction, or whether there is a place, the government's looking to go to with this. It's fairly wide open, it seems. It's a consultation, but at least on the surface there doesn't appear to be any real direction, as there sometimes can be with these things, as to where the government is looking necessarily to go with it. My understanding from the people I've spoken to who have engaged with it is that it certainly seems as though that's the case. Those are the perceptions people have had of it as well.

I'm also of the understanding, from people whom I've spoken to, that there hasn't really been a lot occurring with this advisory committee. I don't know why that is or whether that means the government has no real intention of moving in that direction. If that's the case, is a study worth it? If it's not the case, then obviously this advisory committee on open banking—which, I will point out, is supposed to be wrapping up its consultations by February 11, which is just a few days away. What is supposed to occur after that is that—verbatim from the press release setting out the consultations—

the Committee will deliver a report assessing the merits of open banking for Canada, with a strong focus on protecting consumer privacy, ensuring the security of financial transactions and maintaining the stability of the financial sector. The Committee will consider implementation opportunities and challenges later in the year.

That does give us some sense of the direction this is looking to go. Obviously, given the fact that this work has been done and that there is some kind of a direction there, hearing from this advisory committee would be very important, I would think, in this regard. I think that should be a part of the motion. We're obviously dealing with this amendment, so we can deal with that, and I think maybe that's another amendment we could look at here. But I think it should be specifically outlined in here that we should hear from members of this advisory committee and get a sense as to what they've heard and what sort of direction things might be moving in here. That would only seem to make sense to me.

I would think it would also make sense, of course, that we would hear from the finance minister on this and get a sense as to what direction the government is looking at, and what it would see as useful for the committee to look at and study. There's no point in the committee doing something in isolation.

If there are other things at work and at play here, why would we not all try to coordinate those things and do the best job we can to make sure that we're learning from the experiences of the other committee, the minister, and so on, especially given that it says here that this committee “will consider implementation opportunities and challenges”, and it says also, “later in the year”? Obviously, this indicates that there is an intention to take what comes out of this and move reasonably quickly with something. Therefore, why would we not be doing what we can to try to make sure that this work is informing what we would do, and that what we would do would inform what they do, so maybe we can get some sense as to the timelines?

When it talks about “later this year”, in government terms at least, that's fairly quickly, right? That would be good. Certainly that would be where the finance minister would be very helpful for us, to get some sense as to when the government is looking to move on this, and things such as that.

For example, we have an indication here of the committee reporting its findings to the House no later than June 7. Well, maybe that's too late. Maybe the government intends to move something forward before that. Therefore, we should probably be trying to make sure we're on the timeline that would allow this to be properly considered in what's going to take place, if something is going to take place.

Not only that, but it doesn't give an indication in here about reporting. It says “its findings”. It isn't indicating anything about recommendations. I would think if you're going to do a report, you want to ensure that recommendations are part of that, certainly. What's the point otherwise, right?

Those are some of my thoughts on it. The attempt of the amendment here is something that I appreciate, but there are some things in there that are of concern. More importantly, there are some things that are lacking there, so we need to firm those up a bit better.

[The Chair, Liberal, Wayne Easter]

Mr. Kmiec, and then Mr. Fergus.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I'm just picking up from where Mr. Richards left off. I know we had a conversation before, and I like the fact that some of those ideas are now in here. There are a set number of meetings, up to four meetings—so thank you for that—to hear from witnesses in Ottawa.

I have the same concerns Mr. Richards does about international travel. Mr. Saini will be very familiar with my opposition to travel by the foreign affairs committee more generally. I have generally been unhappy about travel internationally due to the costs for the taxpayer.

I did mention, and I think it would be a good idea, to not just have a report of our findings, but to have a report with recommendations, specifically, a recommendation to the government on whether or not to proceed with open banking. I'm going to read a part from the budget where Minister Morneau laid out his thoughts on open banking, because I have some other concerns about duplication of work between what the Government of Canada is doing and what this standing committee of the House of Commons would be doing.

I also think that we should be using Standing Order 109 more often and requiring the government to table a comprehensive report answering our own recommendations within 120 days. It's done almost routinely by certain committees of the House—not all—and I think it's a lost opportunity because it's a public document. Associations and groups who are interested in open banking can see it, as can the chartered banks and people who have concerns about open banking and how the government would proceed with it. They could then take a look at it.

I just think it's good, transparent, open government to require the government to produce a report in answer to the committee's work. I would also like to see the advisory committee on open banking be a witness, and that that would be embedded in the motion, because these are the people who are delegated by the minister of Finance with the authority to go out and consult on this. As Mr. Richards points out, they're supposed to have completed online consultation in four days, by February 11. I think that's an important component in all of this, so I ask myself the question, why are we at this time engaging in something that seems to have already been undertaken by the Government of Canada?

The open banking provision in budget 2018, on page 355, after talking about open banking as an opportunity for Canadian consumers, says:

Recognizing these potential benefits, the Government proposes to undertake a review of the merits of open banking in order to assess whether open banking would deliver positive results for Canadians with the highest regard for consumer privacy, data security and financial stability.

Some of the language is very similar to the motion, but the committee would be undertaking something the government has already done. In fact, the minister has appointed several people to this advisory group. Now we would be duplicating its work. We'd be doing the same thing the government is doing.

I've a bit of a concern that their consultation would end on the 11th, and they would then produce an internal government report that I assume would be made public, but in reading the government website, it wasn't entirely clear to me whether that would be the case or whether it would be advice to the minister. If anybody has some clarity around that, I would appreciate hearing it.

We could potentially be duplicating the work of this advisory committee, which is why I think it would be important. Again, I'm fine with open banking as an idea to research and to look into. I just think that's a required component of this, and maybe a tighter timeline around exactly when we would report back with what I would to prefer be more than just findings, but recommendations, because right now it's Friday, June 7. That would probably be the time around we'd be considering the budget implementation act, part I. I don't want to stall on an open banking report. I'd like it to come back and have the time to do a good job on it with good recommendations that the government would then be able to reply to.

One thing I noticed when I was looking online for more information about open banking.... Among the members who are assigned to this, or at least the members I could find in the public sphere, are Colleen Johnston, who is TD channels head; fintech venture builder, François Lafortune; Kirsten Thompson from the law firm Dentons Canada; and—I'm not going to say this name correctly, so forgive me, Mr. Chair—

[The Chair, Liberal, Wayne Easter]

I had that problem, too.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

—Ilse Treurnicht, former chief executive, Toronto's MaRS innovation hub. Again, I think these would be interesting individuals to meet with. The Canadian Banking Association, I note, is not enthusiastic because it says there's a risk of contagion to reputation or other types of risks with broad-ranging consequences from consumer data being shared. I know that the privacy component is in here.

The Competition Bureau also put out a fintech report back in 2017, supporting open banking, or generally being in support of it. It was entitled “Technology-led innovation in the Canadian financial services sector”, if any member wishes to take a look at it.

I think we could strengthen the motion some more. I think we could offer, maybe even a friendly subamendment if Mr. Fergus is willing to entertain it, to adjust the wording of the motion to get at what we would like.

There are a lot of jurisdictions doing this. I know it mentions the U.K. specifically, but Japan has done this too. Singapore has done this. Many other countries in the European Union have done this. A lot of this is already being done, from what I could gather, and 90% of it is already being undertaken by the private sector within the confines of the law, the way it is structured and the directives being issued by regulators. I really think that the real advantage we have here over, say, a government advisory committee, is to offer specific legislative changes to the Bank Act and other acts that would facilitate open banking, if that is our recommendation from this. If it's not, then fine, I'd be totally fine with that.

It's why I think it's critical to have recommendations. They should be very specific legislative recommendations, dealing with the Income Tax Act, for example, section so-and-so, that these are the changes that should be made, or to the Bank Act., etc. If it got to down to the specifics, it would be a great advantage to the government. A lot of the government's findings...and the Bank of Canada does a financial systems survey as well, where it asks how many people are interested in open banking, whether they see it as an issue. It's at 13% now amongst banking executives and senior executives in the financial services sector, so I think it's worth it.

One other thing I do think we could add to the motion, because I don't think it's covered, after the words, “how potential risks related to consumer protection, privacy, cyber security and financial stability”, is “and the automation of trading”. I think that would be a good addition to make. With automation of trading, the automatic traders, every second a trade is done by AI software, by artificial intelligence. We've seen other committees take on this subject, on whether there are issues with how fast trades can be made, automated trading creates systemic risks in the financial system, whether there are additional risks when people surrender their active participation and they just allow software to decide for them what their trades will be during a day and how that information is shared, perhaps, with different banking institutions. I think automation of trading could be added on here.

One other thing I don't see here is the potential job losses from open banking, given the brick-and-mortar style of banking that we mostly have in Canada right now. I know all of us have apps on our phones. For the major banks, at least, we have these apps, but perhaps a review and a specific mention of the impact on jobs in Canada would be a good addition.

I want to draw the attention of the committee members—I don't know if you've seen this—to an article in the Financial Post, “'Resistance is futile' in slow march to open banking in Canada”. Part of the committee's work, I assume, would be to make the march not as slow and speed it up a little bit.

I want to quote Matt Flynn:

“Canada needs to speed things up, frankly,” Matt Flynn, a Toronto-based partner at Bennett Jones, a law firm, told me in an interview on Jan. 23, adding that “90 per cent” of the legal structure that would be needed to support open banking already exists. “It’s better to get ahead and export our prowess (in financial technology) to the rest of the world, rather than have others come, partner with our banks, and eat our lunch,” he said.

It has a header, “Some fintech companies think the legacy banks might be the problem”. I mentioned the Canadian Banking Association being unhappy about it. I'm just wondering whether automation of trading couldn't be added here. If there's a good reason for not putting it in, I'd love to hear from government caucus members on why. If there's an opportunity, perhaps, to amend the (b) section, just to include job losses.... That wasn't something I'd mentioned before. I think job losses in the banking sector would be of concern to people in the greater Toronto area, because there are a lot of financial institutions there.

I know for the credit unions back home, and for the Alberta Treasury Branches Financial, a quasi bank owned by the Alberta government, it would be of concern to them as well if we're moving away from bricks and mortar. It is also a concern how fast the shift will be, and how fast those jobs are substituted with more IT design, app design and API software companies. That might be fine, but perhaps we should do a deeper dive into that type of information, to specifically bind ourselves to looking at it. I think that would be a good signal to members of the public, organizations and companies that we are going to look at the job losses.

Often we look at innovation, and this is a lot about innovation and the changes to legislation and regulatory directives by our regulators. However, we don't often look at the impact on Canadian jobs and what could potentially happen. I don't mean outsourcing; I mean a move away from the jobs of old. I'm not one of those people, but perhaps you remember when milk used to be brought to the door. That's not the case anymore. We have to go to the grocery store. Those jobs don't exist anymore. I think this would be important to look at as well.

I will mention that there is a bank, a junior member of the big six, the National Bank of Canada, that is already participating in data sharing. It has started sharing its customers' data if asked to do so. Lionel Pimpin, senior vice-president of digital channels, made the point that open banking is a two-way street and that National Bank created a digital hub where its clients can display both in-house and external accounts, which they say is very convenient for its users. It's an opportunity for National Bank to take some business away from some competitors and people from downstream on the business side. We see a lot of consolidation going on in the United Kingdom as well, and it's driven by clients granting permission to view the data they have imported from rival institutions. They see this as a major opportunity, which is different from what their banking association is saying.

Pimpin said all of this in a January 28th interview.

That's going back to my point that 90% are already doing it, according to Flynn, and at least one of the major banks in Canada is already engaging in open banking.

Obviously, there is already a legal structure, a regulatory structure, that allows for it. That's why the motion should be further amended to provide for specific legislative amendments.

I'll take you back for a moment to the tax treaty witnesses we had today. This is going to be complex. I don't think it's just a policy discussion; I think it's a legal discussion around the rules and how comfortable the banks feel about sharing customer data, as well as what the customers have a right to and the legal protections they enjoy.

If there is more open banking, more data could be shared out there. How closely will customers in Canada look at the data they're sharing? How long do those permission sets last? When you give permission to a financial institution, is it permanent? Can you revoke it? What are the measures to revoke it? Those are legal questions. They're ethical and moral questions as well. I think those are also legal rules that we should be recommending to the government on what to do.

That's maybe the difference between we and the advisory committee can do. They will perhaps look at the broader policy environment that exists right now. That is why I think our motion should make recommendations on legal changes to those acts that Minister Morneau is responsible for.

Moody's Investors Service has done quite a bit of review of open banking, making suggestions on some areas. Some of them match closely with consumer protection and the privacy and financial stability components that are in the motion. However, as I mentioned, automation isn't included in the motion, and neither are jobs.

I want to quote this one section from the Moody's report on the government's initiative:The government initiative is credit negative for the largest Canadian banks' retail operations because it has the potential to incrementally weaken the industry's favourable industry structure of a few concentrated players, and therefore the banks' retail franchise strength and associated high profitability....

I get a lot of complaints from Albertans in my riding about bank profits. That's perhaps a a generalized feeling among the populace in western Canada, which I understand. At the same time, we should be looking at the impact this will have on how they operate. With regard especially to the back office that a lot of these banks have, will those be broken down into smaller financial institutions? What are the risks involved in doing that? What are the legal requirements for these almost subcontractors who will be doing business, and how much of your personal information will be changed?

Those are some of the concerns that I have with the way this motion is structured.

I'm also concerned that we won't be able to take on any other study if we approve this motion. I know it says we should hold only up to four meetings, but we only have one week sitting in March, if I remember correctly, which means that in April we'll be back, but it will be for the budget or BIA. I assume that will take us until May.

There will be no opportunity to look at my favourite subject, which, as many members know, is the stress test. I would love to take a look at that. I would be willing to stop talking, if I get some type of indication from the other side that you would be willing to set aside one or two meetings to hear the concerns of witnesses and members of the public about the stress test. We just need to do a simple review, and not make any recommendations. I have a motion ready before the committee on the subject, but I will not read it because it's not entirely germane to the discussion. I want to stay on subject, Mr. Chair. I think that is a worthy one, so if I can get indication from the other side that you'd be willing to consider passing it—as in actually doing it—then we can structure it within the calendar in a timeline that makes sense for the government caucus side.

I'll remind you that last year, Governor Poloz mentioned that he would need a year's worth of data from the Bank of Canada before being able to report back on the impacts of the stress test. There have been plenty of articles written on the subject already. I think it would be good for us to schedule it, which is why I'm concerned that if we pass this motion, this will be the last subject that we cover before we move on to the BIA and the estimates.

I will also mention that RBC, BMO and the Canadian Homebuilders' Association have met with different members of the government. As well, the chief of staff to the finance minister met them on February 5. I assume those conversations are being held in private on the government side regarding the stress test, so to return to open banking here, I don't want this to be the last subject that we cover.

[The Chair, Liberal, Wayne Easter]

It might be a good idea to return to open banking. We've only got about two minutes left.

Go ahead on open banking.

[An hon. member]

We need arbitration.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Mr. McLeod, I agree: I need arbitration. That's what points of order are for.

I would hope that open banking will not be the last subject we cover. I have ideas for subamendments to the motion to strengthen it, including to have recommendations in the report. Then we'd have, if you'd be willing to have it again, a stress test study. Again, I have the motion.

This one needs to be strengthened, so we can have a comprehensive report. Then we can ask for it to be tabled and made public within 120 days after we report to the government through the House of Commons. We need a mandatory appearance by the advisory committee on open banking. For any major change to our banking system, such as the one that open banking could produce, I think it would be wise to have the minister appear as well. That was the experience in the United Kingdom—and that's what the European Union directives were indicating they would like to do. I think that such a large change to the banking system requires the minister to appear and explain his intent with that section of the budget that I read, from page 355, and exactly where he sees this going. I think that's the right thing to do.

If you'd be willing to amend the motion, then we could move on to other matters, such as scheduling witnesses for this. Beyond just the two I mentioned, I think the attendance of the advisory committee on open banking should be required in the motion—I mentioned the members of it—as well as the minister.

We should be offering specific legislative changes, if they're required and if we recommend open banking.

[The Chair, Liberal, Wayne Easter]

I have to leave it there.

I'm just going to make one point. On those studies with Finance, we can require the government to report back in 120 days. We've done it before. We required it on money laundering. On the pre-budget consultations report, the budget is considered the government's response and then the estimates are tabled.

With that, we'll resume debate on the motion and proposed amendment by Francesco Sorbara at our next meeting.

The meeting is adjourned.