Open finance in the UK should lean on international experience

Out-Law News | 18 Dec 2019 | 10:07 am | 2 min. read

The UK's move towards a new framework of 'open finance' should build on the lessons to be learned from how 'open banking' is being delivered in different jurisdictions around the world, an expert in financial services and technology has said.

Open banking is a term used to describe the push to liberate data held by major financial institutions so as to enable those institutions as well as third parties such as fintech start-ups, technology companies and retailers to use the data to deliver innovative new services for customers.

Open banking was pioneered in the UK after the Competition and Markets Authority (CMA) mandated changes to the UK's business and consumer current account markets in a bid to drive greater competition and innovation. The scope of the open banking mandate subsequently evolved to reflect the broader reforms that were being implemented at the time via the EU's second Payment Services Directive (PSD2). Now the Financial Conduct Authority (FCA) has set out plans to build on the UK's open banking regime and explore how a new system of open finance should evolve from it, including what role it as the regulator should play in that. The FCA's call for input is open until 17 March 2020.

Luke Scanlon of Pinsent Masons, the law firm behind Out-Law, said: "It is timely for the FCA to engage in a call for input exercise at this stage. There are many lessons to be learned from the experiences businesses in the sector have had in respect of the roll out of open banking, in which the UK has led in terms of designing API standards, security profiles and iterating implementation plans. The experience, however, as is well documented, has not been a smooth one."

"There are also a lot of lessons to be learned from the divergent approaches that have been taken in other parts of the world – in Australia with the consumer data right, Japan’s focus on commercial arrangements and India’s decision to address the underlying need for digital identity infrastructure first. The FCA will therefore be better equipped to take on a key role in making broader transitions to open finance work better in favour of customers as a result of combining its understanding of what is taking place in other parts of the world with the insight it gains from this call for input," he said.

The FCA set out its vision for open finance in its call for input paper. It said it wants consumers and businesses to be able to "grant access to their data to trusted third-party providers (TPPs) and in return gain access to a wider range of financial services/products", exercise greater control over their data, and engage with their finances, and be empowered to make better financial decisions.

It also wants open finance to deliver "greater innovation, benefiting consumers by providing a broader range products and services that better suits their needs", and for "widespread use of new services" to lead to improvements in the financial health of consumers and businesses in the UK.

Financial services expert Andrew Barber of Pinsent Masons said: "Even though we have not yet seen the full benefits of open banking it is good that the FCA is keen to push the development of open finance. While the UK led with open banking it is interesting that the FCA has referenced the consumer data right in Australia which will give consumers access to a wide range of their data, not only that held with financial services providers. Australia’s consumer data right has clearly taken a march on wider consumer access to data. To retake the lead on consumers having access to their data it is important that expansion of open banking to 'open finance' is driven by the FCA and their call for input should be welcomed by the industry."

Christopher Woolard, executive director of strategy and competition at the FCA, said: "Data and technology are increasingly driving changes in financial markets. As a regulator, we need to understand how this change will shape markets and shape regulation in the future. We want to understand how open finance can develop to best meet consumers’ needs and enhance competition in the interests of consumers. We also want to understand what role we should play in supporting it."