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How open banking could change the accounting world

A global fintech revolution is coming to Canada

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Man walking past TD Canada Trust bankOpen banking could make Bay Street more transparent (CP Images)

Gabrielle Loren looks forward to a day when her accounting team no longer has to cajole clients into handing over myriad financial statements to help properly balance their books. Once open banking becomes available in Canada, she says, accountants can get a client’s permission to access financial information directly from the bank. “It will make our lives a lot less complicated in trying to hunt things down,” says Loren, a CPA and partner for business development at B.C.-based accounting firm Loren Nancke.

Jeff Cates, until recently the president and CEO of Intuit Canada, the company behind TurboTax and QuickBooks, is even more enthusiastic. “It’s going to be an accountant’s dream,” he says. Cates sees accountants using open banking to help their clients make better financial decisions which, in turn, will add more value to the profession.

Open banking promises to be the next revolution in the financial services industry, even if many Canadians aren’t aware of it yet. It allows, with the customer’s permission, the sharing of data directly between a bank and a third party, such as an accountant or another financial firm. Everything from bank transactions and loans to investments at various institutions, and more, could be made available. The third party can then use that information to offer a wide range of products and services, like loans, mortgages or financial advice. Open banking is expected to boost competition and innovation in the financial sector and lead to more efficient and effective tax, accounting and audit services.

“It’s a big issue unfolding right now that will have an impact on the profession—a great example of what we are looking at with Foresight,” says Tashia Batstone, FCPA, the senior vice-president, External Relations and Business Development at CPA Canada. “A vast amount of data is going to be moving around. It will need structure around it. CPAs have a tremendous amount of value to add, because providing information, integrity and trust is what we’ve done since the advent of accounting.”

The U.K., the European Union and Australia have already passed open banking legislation. In its 2018 budget, the Canadian government promised to study the subject, and last fall Finance Minister Bill Morneau created a four-member Advisory Committee on Open Banking that included Colleen Johnston, a CPA and the former CFO of TD Bank. The members took submissions until early February and in the months ahead are expected to release a report that Ottawa says will assess “the potential merits of open banking for Canada, with the highest regard for consumer privacy, security and financial stability.” The government should move fast, says Cates: “If we don’t get in front of this, other countries will.”

Open banking will have “a profound impact on consumers and the financial ecosystem,” according to a PwC report released earlier this year. In the U.K., where it came in just over a year ago, PwC sees a “revenue opportunity” of at least £7.2 billion by 2022. So far, a lot of the innovation has been in “account integration,” open banking apps that let consumers see and control all their money from multiple institutions in one place. Experts see financial management and credit scoring as big opportunities, as well as integrated lending and accounting platforms for small-to-medium enterprises. 

Still, any new technological advance comes with risk, and open banking is no exception. Some of the biggest concerns include privacy breaches, data security, cybercrime and fraud, according to the PwC paper. It cites a 2018 Statistics Canada report showing that banks were the primary target of cybersecurity incidents, at 47 per cent in 2017. “Open banking has the potential to magnify the impact of breach and cybersecurity incidents when they happen,” the report states, while calling on regulators to figure out what “a good data stewardship model looks like.”   

Ensuring data is kept private and secure could be more challenging and expensive with the increased flow of information between parties. Industry standards may also need to be developed to ensure the consistency and control of client data handled by accountants. Michael Wong, Principal, Technology, Research, Guidance and Support with CPA Canada, expects to see some impact on the audit side. “One question may be, how will auditors transition from performing audit procedures on bank statements to data feeds? What controls will be necessary? These are the sorts of things auditors will need to think about.”

£7.2billion—the “revenue opportunity” open banking is predicted to create in the U.K. by 2022

Ryan Leopold, a CPA, the national banking and capital markets assurance leader at PwC Canada and a co-author of the report, believes open banking will help drive innovation. Still, “there are challenges to getting this in use and making it widely accepted,” he says. In the U.K., uptake has been slower than expected due in part to concerns around data privacy and protection, and challenges with implementation. “It will take time to get people on board and maximize the potential benefits,” he says.

Leopold says there will need to be an industry standard for accountants on how data is gathered and used. “Institutions across the board are asking the right questions about, ‘What are the controls over the data? How do we know that it’s fit for the purpose?’ There is a role for the CPA profession to take a look at [those controls].”

Accounting professionals will also have to ramp up their knowledge and use of technology, says Abhishek Sinha, a partner in the financial services advisory practice and the open banking and blockchain leader at EY Canada. “Professionals will be a lot more multidimensional than they have been in the past,” Sinha says. “That’s going to be the future: when everyone, no matter which part of the accounting or audit world they’re in, must have a basic level of technology awareness and skill.” The profession, he adds, will need “to think about how to train [people] to be really comfortable with data and, at the same time, get the insights they need to be able to audit from that data.”

Gabrielle Loren admits she has “mixed feelings” about open banking. While she welcomes the ease and transparency it will bring with audits and other accounting services, her firm—which includes four partners and 23 full-time staff—will also have to invest time and money into training staff on handling this sensitive data, and ensure their security system can meet the new demands. But she believes the investment will be worth it, and that accounting firms need to move with the times if they want to continue to attract and retain clients.

Open banking might even give accountants more peace of mind that their work is accurate, she says. Even though clients are asked to sign a disclaimer saying the information they’ve provided to their accountant is correct, “it isn’t as solid of a backup as being able to use open banking to see it’s all there,” Loren says. “It gives accountants the comfort of saying ‘I’m putting my name on this.’ ”