Open finance has been under consideration in the UK since 2019 when the FCA set up an advisory group and published a Call for Input on the opportunities presented by open finance.
There was no further commentary until the FCA’s Feedback Statement of March 2021 outlined that a legislative framework would need to be in place for open finance to develop. That framework is now going through Parliament in the form of the Data Protection and Digital Information Bill. The Bill provides the statutory underpinning for the government and regulators to introduce and implement smart data schemes in different sectors, including energy, telecoms and, critically, financial services. It will also allow regulators to introduce requirements around consumer protection and consent, security, data acquisition and usage, privacy, onward sharing, operational resilience for data providers (i.e. financial institutions) and data users (i.e. fintechs/third-party providers). Despite the delays in setting central standards or legislation, there are some firms and organisations (e.g. the Centre for Finance, Innovation & Technology) who are pushing forward with the ‘low hanging fruit’ of open finance, and developing solutions on a proprietary basis that are not dependent on the industry-wide standard.
As the legislation is being agreed, issues are being debated by industry and the regulators around open finance including:
- Ensuring the right commercial incentives exist for firms to invest and participate on a sustainable, and probably reciprocal basis.
- How open finance can be designed and operated by firms to enable them to evidence compliance with Consumer Duty — including the delivering against good customer outcomes principle.
- Need for a robust dispute resolution mechanism with redress and liability arrangements.
- Consideration of allowing existing third-party providers who are registered as Account Information Service Providers under open banking to rely on their existing registration to expand into open finance.
- Consideration of whether third-parties should be allowed to initiate actions in open finance i.e. making transfers, initiating sales or redemptions or managing investments given the varying rules and operational infrastructure across the different types of investments.
- Consideration of the phasing the product types and sectors that are available for open finance — for example — building upon the standard and guidelines established in open banking to expand to savings accounts, ISAs and lending products first.
- The need for clearer regulatory definition around the advice/guidance boundary e.g. do machine generated personal recommendations constitute ‘regulated advice’. This could be informed by the joint policy paper that the FCA and HM Treasury will be publishing shortly.
There has also been discussion on whether the government will commit to provide access to government-held data sets — e.g. those held by HMRC, DWP and Companies House.
Open banking has evolved with the support for various entities, including common standards and guidelines developed by Open Banking Limited and the Joint Regulatory Oversight Committee. Learning from the evolution of open banking, a similar structure may be needed for open finance and consideration will also need to be given on how it would be funded.
