The UK’s Competition and Markets Authority (CMA) has opened a consultation on the future governance of open banking.
The move comes as the implementation of final elements of open banking – which aims to boost financial services competition and innovation by enabling bank account holders to share their data with third-parties through what are known as open APIs (Application Programming Interfaces) – nears completion this year.
The UK’s open banking journey has so far been led by the Open Banking Implementation Entity (OBIE), which was established in 2016 by the CMA, a non-ministerial government department. The nine largest current account providers (known as the CMA9) were required to create and pay for OBIE.
More than three million UK citizens and businesses are now using open banking-enabled products, while more than 300 firms have completed the enrolment process into what OBIE refers to as its ‘Production Directory’, with another 450 in the pipeline according to the organisation’s recently published annual report.
OBIE’s trustee Imran Gulamhuseinwala told Global Government Fintech five months ago that implementation was “in the final lap” and writes in the annual report that ‘the final components are falling into place’.
OBIE + open finance (etc) – compliance monitoring = ?
The CMA’s consultation draws heavily on work undertaken by banking industry body UK Finance on how a successor body to OBIE should be established.
UK Finance, which has more than 250 members, has set out how a new ‘service company’, with a more broadly-based funding and governance model than OBIE’s, could be created in a 40-page document entitled ‘Open Banking Futures: Blueprint and Transition Plan’.
The new entity would take over OBIE’s functions, other than compliance monitoring, which would be handled separately, according to UK Finance’s proposals. It would also take into account developments such as open finance, which channels the spirit of open banking into a wider range of sectors and products; smart data; the development of the European Union’s SEPA (Singe Euro Payments Area) API Access scheme; and HM Treasury’s push in last year’s ‘Payments Landscape Review’ call for evidence to further develop the potential of open banking payments.
‘Independently-led’ governance important
OBIE’s annual report lists monitoring the CMA9’s implementation of refund functionality and the provision of variable recurring payments standards as among ‘remaining items’ that it needs to achieve.
The CMA notes that ‘although the core elements of open banking are now in place, and the open banking ecosystem has developed a powerful forward momentum, it is not inevitable that it will continue on the same trajectory’. The CMA goes on to warn that ‘while the largest banks have shown signs of embracing open banking, they may also have an incentive to slow the further development of the open banking ecosystem, where this conflicts with their own commercial objectives’.
The authority therefore says that it must therefore ensure that open banking’s future governance framework must be ‘independently-led’ and accountable; adequately resourced to perform the functions required; dedicated to serving the interests of consumers and small businesses; and sustainable and adaptable to future needs.
The CMA consultation focuses on three main areas. First, whether the successor organisation proposed by UK Finance would indeed be independent and accountable; adequately funded; dedicated to serving the customer’s interests; and robust and sustainable. Second, the compliance monitoring arrangements that the CMA will need to put in place. Third, what transitional arrangements will be needed and when the process should start.
‘Future Entity’, future cost savings?
OBIE’s costs for 2020 were about £36m (about $49.8m) – down from about £47.6m in 2019 – with income of about £3.4m in 2020, according to its annual report.
The bulk of the successor entity’s funding, at least initially, would come from the CMA9, according to UK Finance’s proposals, which say that the costs of the ‘Future Entity’ during 2022 could be lower than OBIE’s 2021 costs (and ‘lower still’ in 2023).
OBIE’s operational structure has shifted over the past year from being entirely run by contractors to being an employee-based organisation, according to its annual report.
During 2019 it had more than 150 full-time equivalent contractors and zero permanent staff on average during the year but, with its first permanent employees having joined the payroll in March 2020, it had 46 staff and an average of about 58 contractor full-time-equivalents last year, the annual report notes. At time of the report’s publication OBIE’s permanent workforce had risen to 71 employees.
HMRC ‘likely’ to drive open banking take-up
The recently published conclusions of the HM Treasury-commissioned Fintech Strategic Review, led by Ron Kalifa, referred to the open banking rollout as an example of UK financial services innovation that attracts plaudits globally. Kalifa’s report urged the government to ‘continue to progress “open finance” as a mandatory regime and in alignment with other smart data initiatives.’
The Financial Conduct Authority (FCA) ran a consultation on open finance last year and slated the first quarter of this year as when it would publish a ‘feedback statement’.
Reacting to the CMA consultation, OBIE’s Gulamhuseinwala described open banking as having been “critical to supporting the UK’s emerging and growing fintech industry”. He said: “As we look beyond [open banking] to open finance and smart data, it is terrific to see a clear recommendation from the Kalifa Review supporting the concept of a similar mandated body to oversee its implementation.”
Global Government Fintech has reported on how UK government departments are starting to use open banking for the delivery of citizen services. HM Revenue & Customs (HMRC) has just kicked off a tender with an estimated total value of £9m (about $12.5m) for ‘Confirmation of Payee’ services that ultimately aims to make it easier for citizens and businesses to make and receive government payments, as well as to detect and prevent fraud – the successful supplier will need to be certified by OBIE. Just weeks previously HMRC awarded the first UK government open banking contract – worth up to £3m ($4.1m) – to Ecospend, a London-based fintech company.
The CMA’s consultation – which will run until 29 March – makes reference to this trend, by saying that the level of open banking use ‘is likely to be further reinforced as HMRC starts using open banking payment products to collect tax’.
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Click here for Global Government Fintech’s interview with OBIE trustee Imran Gulamhuseinwala in October 2020