As the dust settles following the UK’s exit from the EU there is the opportunity for strategic review of how the UK can make the best of its new status and ambitions for sectors such as financial services. One such area for reform or evolution which has already caught the Regulator's and industry attention is the UK's Open Banking Initiative.
What is Open Finance?
Open Banking, or PSD2 as its known in Europe, is a set of regulations which started coming into effect in 2018 which allows third party technology companies and other FinTechs to access banks’ customer data and to initiate payments, provided they have the customer's permission. It aims to increase competition and innovation in an already competitive payments industry, introduce new types of payment services and enhance customer protection and security. It has been shaking up the retail banking market by encouraging the development of new products and services that help customers manage their finances more easily, including switching and price comparison services. This information is shared through an open Application Programming Interface (API) framework with software which allows financial institutions to interact and exchange data.
Open Finance is an opportunity to build on the conceptual framework of Open Banking and extend Open Banking principles to give consumers and businesses more control over a wider range of their financial data, such as savings, insurance, mortgages, investments, pensions and consumer credit data.
The banking industry is currently working on how to standardise the way data is accessed by Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs), including through ‘open banking standards’. Both AISPs and PISPs must be registered or authorised by the FCA. We are currently awaiting the FCA's findings following their Call for Input on Open Finance which closed on 1 October 2020.
Towards the end of 2020 the Coalition for a Digital Economy (Coadec), an independent body representing the voice of Britain's technology-led startups and scaleups, published a new report advising the UK Government and regulators to take a new approach to Open Finance (available here). Recommendations include:
- granting customers a new data sharing right that builds on existing GDPR rules and empowers customers to own and share financial data, without the existing charges levied by banks on FinTechs;
- collaboration between HM Treasury and the FCA to enable TPPs to operate continuous, unattended access to API data, without the need to provide authentication to the bank every 90 days; and
- a market-led, principles-based regulatory framework for Open Finance.
These suggestions will certainly be food for thought for the FCA, particularly in our new post-Brexit world as the UK looks to maintain its reputation as a world-leading jurisdiction for FinTech.
However, if consumers were more in control of their banking data, it would increase trust, drive engagement and empower activity, he argued. “By granting consumers a new data sharing right, and encouraging a market of specialists to compete, banks will have very little room for maneuver this time.,” Gladwin explained. “Ultimately, this will allow consumers to access better, and more tailored, financial services than they do currently,” he added. The fintech firms call for an end to bank charges on third party startups for accessing their financial data as well as an end to the current 90-day re-authentication rule, requiring consumers to re-authorise their banks to release their data for use by external parties. “It is an unnecessary barrier that is preventing consumers from accessing better financial services,” he said.