openbanking
Open banking will change mortgage brokering
OPEN BA BY RAY BASI, J.D., LL.B., DIRECTOR OF EDUCATION FOR CMBA-BC AND MBIBC
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ortgage brokering is very likely on the cusp of a seismic change – the result of Canada moving toward structured and regulated open banking. While government policy appears to be clearly and quickly moving in that direction, the nature and degree of change will depend largely on the details in the yet-to-be-determined legislation and regulations. Mortgage brokers would be well advised to keep abreast of these developments to ensure they are ready to adapt as and when needed.
WHAT IS OPEN BANKING? In basic terms, open banking is a system that allows for transfer of consumers’ financial data between financial institutions. Details in definitions relating to speed, efficiency, purposes, goals and consumer control merely describe the characteristics of particular visions of open banking. Hence the definition of open banking used by the Advisory Committee on Open Banking (Committee) appointed by Canada’s Department of Finance is very telling. The committee, in its Final Report issued in April 2021 and released to the public on August 4, 2021, recommended that open banking be operational by January 2023. The Final Report defines open banking as: … a system that allows consumers to securely and efficiently transfer their financial data between financial institutions and accredited third-party service providers in order to access services that can help them improve their financial outcomes. The definition includes goals, aspirations and parameters that 12
I WINTER 2022 CMBA-ACHC.CA
CMB MAGAZINE
the open banking system include secure and efficient transfers, accredited third parties and improved financial outcomes for the consumer. The definition being used by the Committee makes it clear that it supports a fairly structured robust system rather than one that develops more organically.
SCREEN SCRAPING – THE CURRENT STATE OF OPEN BANKING Financial institutions already use a form of open banking to collect, analyze and access large amounts of customer financial data including borrower information, credit history and financial circumstances. They generally do not share the gathered information with other financial institutions. Much of this crude form of open banking is referred to as ‘screen scraping.’ Screen scraping is presently used by approximately four million Canadians and involves the borrower providing their online banking username and password to an entity that uses new technology to automate the delivery and use of financial services (commonly referred to as a fintech). The fintech uses this information to log into the borrower’s financial institution accounts and data, as if it were the borrower, and scans and scoops the borrower’s financial history and copies it to an external database. That database is then used to provide the borrower with products and services. This process gets around the fact the financial institutions do not share financial information they have gathered and gives the borrower access to data-driven financial services.
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