Data ethics, digital identity, and costs of delivery emerged at the top of the pile of concerns among stakeholders as the UK looks to expand its Open Banking regime to cover ‘Open Finance’, the country’s chief financial regulator revealed in a statement yesterday.
The Financial Conduct Authority’s (FCA) feedback statement was based on its Call for Input, initially laid out in the regulator’s 2019/2020 business plan, with the aim of advancing the UK’s Open Banking adoption to incorporate Open Finance.
Open Finance refers to the extension of Open Banking-like data portability to a wider range of financial products, including savings, investments, pensions and insurance.
This includes the secure re-use of financial services customer data by third parties, based on both ‘read’ and ‘write’ access (otherwise known as ‘payment initiation’ and ‘action initiation’) to boost market-wide financial transparency.
According to the FCA, given the success of Open Banking, with more than three million UK-based individuals and businesses now using apps and services powered by the regime, the government was ready to investigate the next chapter of the UK’s open data journey.
The regulator’s Call for Input received 169 market responses and closed in October 2020.
Industry groups, the FCA revealed, largely agreed that having common standards, an implementation entity (akin to Open Banking’s OBIE), a portable digital identity regime, and interaction with cross-industry open data initiatives would be key components of a successful Open Finance regime.
The FCA wrote: “Responses show that Open Finance could potentially offer significant benefits to customers, including increased competition, improved advice and improved access to a wider and more innovative range of financial products and service.”
The watchdog further noted that Covid-19 had already accelerated digital transformation among UK FSIs, while respondents saw that updating legacy systems in preparation for the regime “would lead to overall modernisation among firms, benefiting them and their customers.”
However, it cautioned: “[Open Finance] would also create or increase risks and raise new questions of data ethics. Appropriate regulation will be essential to managing those risks and giving consumers the confidence to use Open Finance services.”
Respondents, on the other hand, reflecting on the high delivery costs of Open Banking, raised concerns that Open Finance implementation would be similarly costly, stressing that expenses should be “shared equitably” across the market to avoid disadvantaging smaller firms.
Referencing Open Banking again, respondents expressed that identity verification had proved a challenge in the “absence of a portable digital identity”; the FCA, however, did acknowledge the UK Government’s progress, having published draft rules for digital identity governance in January 2021.
Respondents also identified “some form of compulsion” or legislative instrument as necessary to drive Open Finance forward, with the FCA pledging to work alongside the government to oversee the development of a regulatory framework.
Meanwhile, the financial watchdog held that industry should take the reins, supported by an Open Finance implementation body, in developing common standards for data, APIs, operating principles, security protocols, and user experience.
The regulator, however, conceded that Open Finance “would be a significant undertaking for firms”, given existing challenges to mitigate the impacts of Covid-19 and ongoing regulatory change.
Closer to home, Australia’s Consumer Data Right (CDR) regime was designed with Open Finance-type considerations already in mind.
The CDR launched last July with Open Banking, the regime’s first cab off the rank, where eight data recipients have so far received accreditation to access customer data.
While the regime is currently restricted to banking and payments, Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, said in a speech last week that the government was actively looking to move the CDR into energy, communications, superannuation and insurance.
For Hume, the CDR is “one of the most transformative technological advances Australia has ever made”.
Currently, Treasury is considering allowing for ‘write’ access, or ‘action initiation’, to happen. This will allow customers to authorise new service providers to make changes, on their behalf, to old data-holder accounts.