CMA publishes draft open banking order for consultation

UK banks will be required to implement the Open Banking Standard by 2018, allowing consumers to share their own banking data with other banks and third parties and manage multiple providers through a single app.

Many UK consumers are paying more than they should for banking services and not benefiting from technologies in banking because larger and more established banks have too much power in the marketplace, the Competition and Markets Authority (CMA) said in a report published in August.

A framework for the Open Banking Standard was released in February by the Open Banking Working Group and backed by the UK Treasury. At the heart of open standards based banking is the requirement that banks allow anyone to access data they hold about their customers, products and services.

Other changes covered by the CMA consultation include requiring banks to cap monthly unarranged overdraft charges, helping customers to avoid these unarranged overdraft charges by making banks text them when they are at risk of going overdrawn, and also helping customers to compare the service they would get from if they were to change banks.

The consultation also asks for feedback on changes that include requiring banks to publish rates for small and medium-sized enterprise (SME) lending products and to develop tools to allow easier comparison of SME banking products.

Alasdair Smith, chairman of the retail banking market investigation said: "These reforms will fundamentally transform banking for personal customers and small businesses. They will break down barriers, increase competition and give customers control over their own money. Taken together we expect our remedies to deliver direct benefits to customers of between £700 million and £1 billion."

Financial services expert Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com said: "A central component to the CMA’s report and draft order is using technology to give customers more control over their accounts, and to try to encourage competition. Open banking through application programming interfaces (APIs) is key to this, and the CMA, along with the impending requirements under the second Payment Services Directive (PSD2), is ensuring that open banking is top of the agenda for banks."

"It will be important for banks to embrace the opportunities that this represents, rather than see it as another regulatory compliance issue to be 'got through'. Banks that do not embrace this risk being left behind as mere data pipes with others, whether fintechs or other banks, getting between them and their customers," Dunn said.

"However it is interesting that the CMA is consulting on the draft order with a deadline of 23 December, given the tight timescales that it has imposed on the banks and the fact that the implementation trustee has already been appointed. It is difficult to imagine that the consultation is going to change the CMA’s course of action radically," she said.