Open finance will be the first major area of focus for the recently launched UK government-backed Centre for Finance, Innovation and Technology (CFIT), a government minister has announced this week.
HM Treasury and the City of London Corporation, the public authority for the Square Mile – the part of the capital where many fintech companies, as well as major financial services institutions are located – have committed respectively £5m and £500,000 (£5.5 million total: about $6.84m) of seed funding over three years to get the centre off the ground.
Setting out the government’s ambitions for the fintech sector at the ‘Innovate Finance Global Summit 2023’, economic secretary to the Treasury Andrew Griffith described CFIT’s “central task” as being to “bring together industry players – entrepreneurs, policymakers, investors and academics – into coalitions to address some of the trickiest challenges facing the sector.”
He announced in a speech at the conference, which was organised by the UK fintech sector’s trade body, that CFIT’s first ‘coalition’ will focus on “open finance and how unlocking financial data can benefit SMEs [small- and medium-sized enterprises] and consumers.”
“Everyone in this room understands how data can radically empower individuals and businesses alike,” he said, quoting figures from management consultancy McKinsey that ‘estimate that opening up financial data could boost UK GDP by a useful 1.5 per cent by 2030’, saying that CFIT “has my full support as they go after that opportunity.”
OPEN FINANCE: EXPLAINED Open finance, and its sibling concept ‘open banking’, are being encouraged by governments worldwide, in different ways at different speeds, as a means of boosting innovation and competition in financial services. It is a reference to users sharing their data with third-parties (for example, fintech companies or fintech-powered products launched by established financial institutions). ‘Open’ refers to open application programming interfaces (APIs): software intermediaries that allow two machines to interact. ‘Open APIs’ are APIs made publicly available to software developers.
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Open finance’s possibilities and ‘hurdles’
The announcement of CFIT’s initial focus area comes just weeks after Ezechi Britton was named as the centre’s chief executive.
In a newly published blog-style post (‘Open finance has the power to launch the next phase of financial innovation’) on the CFIT website, Britton writes that the ‘availability of next-generation technology, API-led mobility, cloud enablement and progressive data analytics are all opening new possibilities.’ But he adds that ‘whether it’s data integrity, siloed relationships, new standards, security or regulations, there are some significant hurdles to progression’.
A CFIT ‘coalition’ is defined as a ‘multi-disciplinary group focusing on specific themes and pain points that hold back financial innovation’. The coalitions will be ‘time-bound, purposeful, agile and open collectives consisting of experts from across finance, technology, policymakers and academia’. They will, Britton writes, ‘set strategic priorities, define use cases and opportunity statements with the ultimate aim of turning these use cases into innovative solutions within nine to 12 months’.
The centre has just kicked off recruitment for its first director of coalitions and research, a role reporting to Britton, that will see the postholder ‘get to craft, structure and drive the very first coalitions that will be launched to solve the challenges facing the UK’. Various further roles are also being recruited for as CFIT cranks up its operations. The open finance coalition will start work in June.
The creation of CFIT, which will ultimately need to be self-financing, was among the recommendations of the high-profile HM Treasury (HMT)-commissioned Fintech Strategic Review (also known as the ‘Kalifa Review’) published more than two years ago. The centre’s overall remit is to ‘bring together experts in finance and technology from across the UK to come up with solutions to the most challenging issues facing fintech firms including how to help firms to scale, how to foster collaboration within and between growing national and regional fintech hubs, and how financial innovation can promote sustainability and financial inclusion.’
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Open banking’s evolution
Griffith’s speech was delivered on the same day (17 April) that the UK’s Joint Regulatory Oversight Committee (JROC) published its recommendations for the ‘next phase’ of open banking. The JROC is formed of HMT, the Competition and Markets Authority, FCA and Payment Systems Regulator.
Griffith told the conference audience that “this will be the year of delivery on the next generation of open banking”.
The report includes five main themes, as well as 29 ‘actions’, as priorities over the next two years. The former are: ‘levelling up availability and performance’ of APIs; mitigating the risks of financial crime; ensuring effective consumer protection if something goes wrong; improving information flows to third-party providers and end-users; and promoting additional services, using non-sweeping variable recurring payments as a pilot.
Open banking is currently overseen by the Open Banking Implementation Entity (OBIE). In the report JROC sets out its vision for a ‘future entity’, including its funding. ‘As the entity scales with more actions and activities… its funding model will evolve so that revenues are not solely drawn from membership fees, but supplemented by the provision of additional services (for example, advisory services) to the market and international counterparts,’ the report notes.
The long-awaited 50-page report also outlines principles that will underpin a long-term regulatory framework, which the government plans to legislate for through the Data Protection and Digital Identity (No.2) Bill. This had its second reading in Parliament also on 17 April.
JROC plans hold a webinar to summarise its proposals next month (May) and to ‘set out a detailed plan for the future entity and the OBIE’s transition to it’ between October and December 2023.
*** Global Government Fintech’s open banking / open finance section ***
AI: ‘we are barely getting started’
Griffith, who was appointed economic secretary to the Treasury just over six months ago, also touched on the potential of artificial intelligence (AI), stating that “if data is one limb that has the potential to transform the financial services sector, the application of artificial intelligence is the other.”
The government published a white paper on AI on 29 March.
“Although there are already many deployments and uses in the financial sector, my belief is that we are barely getting started,” Griffith said at the event. “AI can help firms to identify and prevent fraudulent transactions, detecting suspicious patterns in real time. By analysing data on market trends, customer behaviour, and other factors, AI algorithms can identify potential risks and provide recommendations for risk mitigation strategies. It can help investment managers to make more informed decisions, driving better returns for savers. And AI can power new customer service features, such as chatbots, which can deliver personalised support quickly and efficiently.”
He also announced the launch of a ‘UK Fintech Census’ in collaboration with the City of London Corporation and Innovate Finance. Its aim, he said, is to “tailor support” to help fintech companies to “make the most of the UK’s access to international markets”.
The census is aiming to reach “all 2,500 fintechs [companies] in the UK” and is asking three questions: what international markets they want to break into; what their main challenges are; and what further support and services they would you like to see. It opened this week with a five-week window for replies. It will be repeated annually.
*** The City of London Corporation also this week announced a partnership with Innovate Finance to set up a ‘RegTech Platform’ to ‘host strategic dialogues between vendors, financial institutions and other key stakeholders in the RegTech ecosystem to tackle problems that are affecting the sector’.
Government-backed centre to boost UK fintech appoints first CEO – our news story (3 February 2023) on Ezechi Britton’s appointment
UK Labour Party backs fintech sector as market uncertainty bites – our news story (13 October 2022) on the UK’s shadow City minister setting out the opposition Labour Party’s commitment to supporting the country’s fintech sector
‘Joint Regulatory Oversight Committee’ for UK’s open banking regime – our article (28 March 2022) on JROC’s creation
UK open banking body faces governance overhaul – our news story (5 Oct 2021) on the Competition and Markets Authority issuing an ‘Update on Open Banking’
Open finance: phased rollout better than “big bang” launch, UK’s FCA told – our news story (9 April 2021) on the FCA’s publication of a ‘feedback statement’ summarising 169 responses to a ‘call for input’ on open finance
UK fintech review presents recommendations – our news story (26 February 2021) on CFIT’s creation being among the Kalifa Review’s recommendations
GLOBAL GOVERNMENT FINTECH LAB 2023: REGISTER NOW
The Global Government Fintech Lab 2023 will be taking place in Dublin on Thursday 18 May 2023. The Lab, our one-day event for senior public servants interested in exploring and implementing fintech solutions, is being organised in partnership with Ireland’s Department of Finance. The event, which is free to attend for all public servants, will feature keynote speeches, panels and breakout sessions focused on fintech-related opportunities and challenges for those working in central government, agencies and other public authorities.