CMA launches consultation on the future governance of open banking
As the implementation phase of open banking comes to an end, the UK’s Competition and Market’s Authority (CMA) is currently accepting submissions from stakeholders on proposals by banking industry body UK Finance to establish a successor to the Open Banking Implementation Entity (OBIE) to provide oversight and governance of the industry.
Open banking is an initiative that gives third-party providers (TPPs) access to banks’ and financial institutions’ data. Through application programming interfaces (APIs), TPPs can develop new products and services that are often centred on giving consumers and SMEs a greater understanding of their finances, or improving integration with other services. Proponents of open banking herald the improved transparency and higher levels of competition that it brings although one can argue whether this is actually being achieved so far.
The CMA notes that although the core elements of open banking are in place, it is not inevitable the open banking ecosystem will continue to have the same powerful forward momentum. Despite showing signs of embracing open banking, the CMA thinks that the largest banks may have an incentive to slow the further development of the open banking ecosystem where this conflicts with their own commercial objectives. The CMA is therefore seeking stakeholder’s views on what arrangements it would be appropriate to put in place to ensure the effective oversight and governance of open banking, considering, in particular, the following areas:
- independence and accountability of leadership;
- level of resourcing;
- representation of consumers and SMEs;
- sustainability and adaptability; and
- monitoring arrangements.
The full list of questions can be found on the consultation’s webpage, although the CMA invites views on any aspect of the proposals.
This consultation comes as the implementation requirements of the Retail Banking Market Investigation Order 2017 (the Order) are due to be completed by the end of 2021. The Order implements the reforms recommended by the CMA in its Retail Banking Market Investigation: Final Report on 9 August 2016. Broadly speaking, these proposals were for the development and implementation of the systems which make up the open banking environment. This implementation has been overseen by the OBIE. As this implementation phase comes to an end, the CMA is developing a governance structure to oversee open banking in the long-term, which requires a new organisation.
UK Finance Proposals
Earlier this month, UK Finance published its proposals for the future governance of open banking. At the heart of these recommendations is the ‘Future Entity’, a successor to the OBIE. The Future Entity would have as its vision the promotion of an efficient, safe, and reliable open banking market, as well as supporting UK financial institutions to meet their regulatory requirements. This is different to the OBIE, which focused on the successful roll-out of the APIs, data structures and security architectures that make up open banking systems.
The Future Entity would be a not for profit private company limited by guarantee. Its members would be both traditional banks and financial institutions, as well as TPPs. Members would benefit from access to service capabilities, the ability to join an advisory committee to provide guidance to the board, as well as voting rights on board membership. The Future Entity’s service capabilities include directory whitelisting, by which it is able to confirm that a market participant is authorised by the relevant national competent authority, as well as customer experience guidelines, issuing guidance on relevant regulation, and a dispute management service.
UK Finance’s proposals include suggestions as to the skills and experience that the board should have, which include financial services and fintech industry knowledge and experience, operations, technology provision and technical knowledge of APIs and associated technologies, and customer experience and consumer policy. It would include both independent and industry personnel from both traditional banks and financial institutions, as well as TPPs.
The publication also makes proposals on funding, liability, transition planning, as well as longer-term suggestions such as board dedicated to more macro, longer-term thinking and a more distinct commercial entity that is able to turn a profit by providing some commercial services (including directory and a service helpdesk) and compete with market participants.
The consultation is open for submissions until 5pm on 29 March 2021, so firms that want to submit responses should act quickly.
The CMA will consider the responses to this consultation alongside UK Finance’s proposals as it develops the framework for the future governance of open banking. Whatever future landscape the CMA settles on, firms operating in the open banking space should keep an eye out to ensure they can make the most of the opportunities that it will bring to be involved in the future governance of their industry.
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