How Open Finance Can Guide Ontario’s Privacy Modernization

Updated: Sep 23, 2020

The Ontario government’s recent announcement of consultations to improve the province’s privacy protection laws presents the opportunity for Ontario to introduce leading privacy requirements for businesses in the province. In addition to enhancing Ontarians’ privacy rights, the proposed changes will bring much-needed clarity to businesses on how they can comply with privacy legislation.

In updating the province’s privacy rules, focusing efforts on introducing protections and rights that effectively cover transformative and innovative technologies can allow the province to be competitive as new proposed technologies and businesses are released. An example of transformative technology that can be enabled by improved privacy rules and provide numerous benefits to Canadians is ‘open finance’.

Open finance builds upon open banking by promoting the sharing of an array of financial information and products with third-parties across different industries. This includes information on an individual’s payroll information, mortgage, pension plan, insurance and investments. Open finance’s envisioned ability to create new and competitively priced services will benefit consumers, financial technology companies, and traditional businesses reinvent themselves by incorporating new financial services into their offerings.

For the average Canadian, open finance will mean having financial services that make their lives easier on many different fronts. While many Canadians are currently accustomed to using robo-advisors, open finance will allow for the next-generation of robo-advisors to provide financial planning recommendations beyond just investments. The new combinations of financial information will also allow for more sophisticated budgeting tools that may combine a person’s wages, taxes, credits cards and bank information all in one place. Overall, Canadians will end up receiving personalized financial services in more diverse and inclusive ways, which can only be made possible through open finance.

The creation of these new personalized financial services enabled by open finance will require cooperation and collaboration amongst industry actors and the continuing evolution of Ontario’s technology ecosystem. It will also require the extensive sharing of personal information, which may be one of the biggest obstacles to open finance’s introduction due to how the province’s privacy laws are structured.

Under Canada’s current privacy framework there is limited incentive for businesses to share information. For example, one of the guiding privacy principles is for businesses that collect information to limit who it is shared with. Many businesses in Ontario that collect troves of financial information refuse to share it in reliance on the current framework.

This contrasts with one of the tenets of open finance, which is that individuals should be empowered to have the choice and freedom to share their information with whomever they would like. True data portability in a sense.

With open finance’s proliferation expected to result in the coming years, introducing privacy laws that effectively govern it and enable its emergence can give the province an advantage over other global technology hubs. One privacy mechanism that can be used as an enabler of this innovation is through the use of ‘data trusts’.

Data trusts are a legal mechanism, based on the traditional legal trust structure, where an individual’s data is held by a third party for their benefit. The province is exploring the use of data trusts as a way for organizations to have trusted third parties ensure “transparent and accountable use” of the data they collect. Its introduction would be the first in Canada and is likely in response to the “urban data trust” and “civic data trust” proposed by Sidewalk Labs’ during its campaign to redevelop the Toronto waterfront.

Properly drafting and establishing the right legislative structure for data trusts can be a major catalyst for open finance in the province. Data trusts have been extensively explored in the artificial intelligence context, commonly viewed as a centralized repository of information that can be accessed by different stakeholders seeking to use the original data or in aggregate form.

While this structure has been found to make it easier ‘access, reuse and profit’ from the data in the trust, researchers have found that it can lead to a form of ‘data control’ and ‘monopoly ownership’ of digital infrastructure by select actors. However, with the right legislative framework, data trusts can be structured in ways that allow for financial information to be shared safely.

One way that may be structured is through the use of trusted data connectivity providers as data trustees. These providers have the security to protect information and technical capability to allow the user to truly exercise their right of portability in sharing their financial information.

The understated benefits of allowing data connectivity providers to act as ‘data trustees’ is that they already follow best-practices when it comes to ensuring the protection of data privacy and from a governance perspective have an aligned interest to share data responsibly. If Ontarian’s for example were given the right to direct their personal financial information through a data trustee, this would be one enable of open finance and loosely follow Australia’s proposed data ownership regime, but with greater flexibility.

With the provincial government introducing the opportunity to create meaningful changes to the province’s privacy legislation, there should be a focus on creating rules that benefit innovative companies and those that choose to follow their lead. Proactively introducing rules that foster open finance and other emerging industries will further increase the lead that technology hubs in the province have over their international peers and better protect the privacy rights of Ontarians.