Open banking needs better risk controls to ensure fintechs keep your money safe

financialpost.com:

With last week’s rumour about the political demise of Finance Minister Chrystia Freeland proven greatly exaggerated, advocates of open banking in Canada can breathe a sigh of relief that this project won’t be derailed by changes to cabinet.

Recall that Freeland’s April budget announced a legislative framework for introducing open banking this fall, a long-awaited initiative that could eventually change how Canadians bank. Open banking garners broad support in political circles, including Opposition leader Pierre Poilievre, who said it “will give Canadians back control of their banking … and create savings … 365 days of the year.”

For those unfamiliar with open banking, the Finance Department touts it as allowing “consumers and small businesses to securely transfer their financial data through an application interface to approved service providers of their choice.” In short, it offers Canadians and small businesses the right to safely share financial data — typically limited to the internal use of one’s bank — using fintech apps accessible on smartphones and computers.

What will this look like in practice?

With the help of fintech apps, consumers and small businesses can shop around for loans, mortgages, bank accounts and investments. Ultimately, the goal of open banking is to go beyond data sharing to “buying” various financial services and products. We already see this in other G7 jurisdictions such as the United States, where fintech has taken off.

Open banking enthusiasts have lamented the slow pace of change in Canada, yet this offers time to assess the associated risks and how to manage them.

Consider the case of now-bankrupt Synapse Financial Technologies Inc. in the U.S. It pioneered “banking as a service” by