Open banking: Set for a boost under new governance structure?
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A new joint regulatory oversight committee will be set up to oversee the development of open banking beyond the scope of the remedies imposed by the Competition and Markets Authority.
The Treasury, the CMA, the Financial Conduct Authority and the Payment Systems Regulator published a joint statement last week which sets out their plan to establish a joint committee for overseeing the development of open banking beyond the so-called ‘CMA9’ - the nine largest banks and building societies based on their volume of personal and business current accounts. They are AIB Group/First Trust Bank, Bank of Ireland (UK), Barclays, HSBC, Lloyds Banking Group, Nationwide, Northern Bank/Danske Bank, NatWest and Santander UK.
The new committee will succeed the Open Banking Implementation Entity, with the Treasury, FCA, PSR and CMA agreeing that it should:
- have effective regulatory oversight, with a new Committee, led jointly by the FCA and PSR, to consider the entity’s vision, governance and priorities;
- be independent, well-governed and underpinned by a set of values and cultures that include an emphasis on integrity and promoting ethical behaviours;
- play a central role in delivering new proposals beyond those required by existing regulations;
- be adequately resourced to carry out its functions through a more broadly-based and sustainable funding model;
- effectively serve the interests of consumers and businesses, including consideration for how these groups will be represented on the Board.
Can the new authority serve two masters?
The change in oversight for the expansion of open banking brought some concern about the design of the new authority, which will be led by two organisations – the FCA and the PSR, rather than by a single one, the CMA, as was the case with OBIE.
Sarah Bateman, a technical consultant at fintech Altus, said there could be a problem with the committee having to serve two masters. “Will this lead to a watering down of the aspirations of the Open Banking ecosystem - the 'two governors' effect? There are sure to be instances where the organisations have contradictory interests,” Bateman said.
She also noted that the announcement was very light on detail as it only states that a long-term regulatory framework will be put in place and the future entity will “continue to develop Open Banking within this framework".
Until it becomes clearer what the new authority looks like and where its priorities lie, it is difficult to judge the new structure, she said. The first meeting of the committee is due in the second quarter of this year, with a design for the new entity followed by priority setting by Q4.
Open banking has a long way to run, believes Altus’ head of retirement strategy, Jon Dean, to add in savings, credit and mortgage accounts, in order to “make the thing genuinely useful”. He was therefore critical of the fact that there was no mention of open finance in the government’s announcement. “This should be tied in so that a set of industry standards can be agreed and make a holistic personal finance dashboard that we can all get behind,” Dean said.
A sign of a maturing market?
Others welcomed the change as a sign that the market is maturing and being brought closer to other regulation. “We view this as a positive step forward. Positioning it under FCA/PSR brings it in line with other mainstream regulation, and it is worth noting that Customer Duty also covers Open Banking regulated entities,” said Dan Scholey, CCO of open finance platform Moneyhub.
The commitment to realising open banking benefits is clear, he believes, noting that smart data points to an integrated data rights approach. The development is “a mark of a maturing market despite the petty distractions of the weak previous governance”, he said.
Paul Waters, head of digital wealth at consulting firm Hymans Robertson, views the change as a starting shot for greater product innovation and long-term benefits. The announcement "gives the green light to the next wave of open banking-related product innovation for the financial services industry”, he said.
“After a slower than preferred start, the UK’s open banking regime is delivering real benefit for end consumers in managing their finances more safely and confidently,” Waters noted, believing that the two factors will give confidence to businesses looking to invest in open banking initiatives for their customers and will encourage collaboration between firms.
“Open banking is a financial services success story that the UK can be proud of and build upon the achievements to date,” he added.
How will open banking develop in the coming years?
