FCA calls on financial firms to embrace era of open finance

In a recent blog, FCA senior adviser Magnus Falk said the insurance, savings and mortgages sectors should get involved in the implementation of 'open banking' reforms, using lessons learned from the Competition and Markets Authority’s (CMA) standards-setting process for banking.

Falk said open banking, which requires banks to share transaction data with authorised third parties, should be the start of a wider process of allowing customers to benefit from the data generated by financial transactions of all kinds.

A move to open finance would see data held by large firms across the financial services sector made available to fintech companies, retailers and other third parties so that those businesses could develop innovative new services.

"The lessons from the implementation of open banking are applicable to the whole financial sector (and probably beyond)," said Falk. "Some of what open banking has created can be directly re-used by other financial sectors. However, there will be work, sector by sector, to establish the standards for the products unique to each sector."

He said the work undertaken in relation to open banking has showed that it is possible to create and operate "a re-usable secure mechanism for computer communication between authorised firms". Falk suggested that the expertise of the Open Banking Implementation Entity (OBIE) should be built upon, and called on businesses from across sub-sectors of financial services to be "eager participants" in the creation of open finance standards and not wait to be compelled to act.

Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said inaction by firms could result in the regulator forcing action in the future.

“This insight on open finance is interesting to any firm, particularly those who were not involved in delivering the open banking initiative,” Barber said.

“It shows that the FCA wants firms with products like insurance, mortgages and savings to start thinking about how they can work with others to enable customers' access to their data. The question for firms is, will they be forced to take action, like the CMA did with open banking, if they don’t start taking positive steps to develop open finance?” Barber said.

The UK’s open banking regime officially took effect on 13 January 2018. Nine major banks were obliged to facilitate open banking in the UK, and the OBIE said in January 2019 there were 100 regulated providers of open banking services in the UK, including 67 third party providers and 33 account providers.

A recent report produced by independent representatives on the OBIE steering group said there was immense potential in open banking and open finance, but that a new strategy is needed to bring "consistency and security to data portability and appropriate governance arrangements to ensure open finance is delivered and in a way which puts consumers’ interests first".