Summary: The FCA’s feedback on the Open Finance CFI
The FCA have just published their feedback to the Call For Input (CFI) on open finance. Over 160 organisations responded to the call, the results of which are being watched by financial bodies, regulators and companies the world over.
The initial CFI was important as it laid out the foundations for a proposed scope of what open finance could look like in the UK and how it could be implemented.
For those that haven’t read the 30 odd pages of the Feedback Statement and want a bite size version, I’ve laid this out for you below…
The feedback statement recognises many of the key themes raised by the responses of the call for input including;
Delivery implications - The majority of the respondents advocated for a phased delivery approach rather than a ‘big bang’ (which on the surface is sensible)... Initial focus has been placed on extending the scope of open banking accounts and permissions. It was also recognised that there is a cost vs benefits analysis for Open Finance that will need to run deeper than it did for Open Banking. For example smaller companies shouldn’t be burdened with expensive and complex implementations, indicating that the roll out of Open Finance might not be standard across the board.
Cost implications - There was a recognition that Open Banking has been expensive and open finance should see lower costs shared equitably, potentially using federated services built and shared collectively.
Framework - The view is that this could go two ways; a market led approach such as in the US, where industry participants look to shape the market using DDA’s (Direct Data Agreements) and legislators leave it to the ecosystem to interpret the best way to access data, or like the UK, who had a framework in Open Banking that set standards of access (via API’s). Regulatory bodies in Australia have gone a step further, putting in place legislation to ensure that the right for a customer to access their data is implemented in law. Within their feedback statement, the FCA seemed to be verging on the latter, with the view that the framework would become secondary legislation drafted by the Treasury.
Security (data breaches) - The FCA concurs that re-use of data that is accessed by TPP’s on behalf of customers can only be done with informed customer consent. This would need to be managed under a ‘clear framework of consents’. Although this is the working hypothesis of Open Banking right now, given the wider remit of open finance, the concern is that many organisations that you might not want to have your data, might end up using it. This improved consent framework would be a mitigation against that, although the feedback statement doesn’t talk further into how this might take shape.
The FCA’s proposed next steps:
Consider data ethics ‘from the start’ as part of any design system. This would form part of any subsequent regulation.
The coverage of current commercial agreements and the commercial benefits of open finance are not enough and are ‘limiting’. To flourish, the comical incentives need to be ‘reciprocal’ and ‘sustainable’ between different parties (basically making sure that there is an incentive for all to get involved).
Data access needs to become a statutory right and as such a legislative framework is needed for open finance to develop (proposed as legislation to be created in conjunction with the Treasury).
The implementation of open finance needs to be ‘proportional’ and phased, meaning as stated above, that a ‘big bang’ approach is off the table.
A liability model has been recommended by the FCA (there isn’t really one at the moment) and that could be fascinating, potentially covering data breaches, loss of revenue (if applicable) to the customer and in the future, the liability on financial transactions going wrong
The FCA have recommended an OBIE equivalent, which is sensible, and also dovetails nicely into the consultation paper released on the topic earlier this year. This should have a strong consumer and SME voice represented.
‘Create common standards’, the interpretation of which will be left to the industry (firms / TPP’s etc) to work together on shaping. A minimum set of data that could be shared on a ‘read’ basis is the first step being encouraged. After that, the FCA and the Government will work on the feasibility of how firms in different sectors sharing that data.
The FCA also gave a nod to the BEIS smart data initiative, the digital identity initiatives currently being investigated and the work on Pensions Dashboards. There is time for these to flourish before open finance is set in stone, and their progression will also help shape the depth of the legislation required.
The FCA have encouraged digital identity and open finance propositions to their Regulatory Sandbox, which will no doubt evolve to serve the new legislation and scale.
The FCA have positioned themselves as having a clear role to play in supporting the government in drafting this legislation and stated that they are the ‘likely’ regulator of open finance TPP’s under any said legislation. They have also identified a concrete next step - to work with the BEIS (who are overseeing the Smarty Data Initiative) and the Treasury to start to form a view of the work needed to inform the feasibility, timing and design of any legislation. Industry led roadmaps are going to be encouraged, likely to be delivered through a new body (or bodies) like the OBIE. The FCA have stated that the work will consider the Pensions Dashboard Program and the Digital identity work being conducted by the DIU.
So far so good, but the feedback statement stops short of proposing timings. As per the above there are a few dependencies to work through to figure out the best time to start working on the detail of open finance, to refrain from complicating the roll out of other initiatives and to give time for an OBIE substitute to be created.
Let’s see where we go from here...