The Competition and Markets Authority (CMA) has published recommendations for the oversight and governance of open banking in the UK.
The recommendations – including the creation of a ‘Joint Regulatory Oversight Committee’ (JROC) – will be taken into consideration in the design of a new organisation to succeed the Open Banking Implementation Entity (OBIE), which was established more than five years ago to get open banking off the ground.
The CMA recommends that the future entity should ‘have effective regulatory oversight’, with JROC to agree and implement steps towards its creation.
JROC will be co-led by the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR), with the CMA itself and HM Treasury as its other members. The FCA authorises, regulates and supervises open banking and payment firms while the PSR is the economic regulator for payment systems.
The quartet have published a joint-statement setting out the cross-authority work they plan to undertake. They aim to convene JROC’s first meeting during the second quarter of this year and to have drawn up a plan for the future entity’s design by the fourth quarter.
DEFINITION: Open banking refers to the use of open application programming interfaces (APIs) to enable bank account holders to share their financial data with third parties. It aims to encourage innovation and boost competition in financial services.
UK’s leadership role (to date)
The UK’s open banking governance developments are closely watched because the country is seen as an international leader when it comes to rolling out open banking. As of January 2022, the UK had recorded more than five million users of services powered by open banking technology. But a damning report was published last year into OBIE governance failures while numerous other nations, such as Australia, have been stepping up their pace of implementation.
Publication of the CMA recommendations also follows a consultation on UK open banking governance that took place during March last year. This drew heavily on work undertaken by UK Finance on how a successor body to OBIE should be established. The banking industry body 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’.
Among its recommendations, the CMA states that the future entity should have ‘independent and accountable’ leadership, with a majority of independent directors on its board; be adequately resourced to carry out its functions through a ‘more broadly-based and sustainable’ funding model; effectively serve the interests of consumers and small and medium sized businesses, including consideration for how these groups will be represented in the governance of the entity; and have a system to effectively support the monitoring and enforcement of the Retail Banking Market Investigation Order 2017 (which paved the way for open banking).
OBIE aims to ‘maintain momentum’
OBIE has made a raft of appointments and governance changes since the publication of last year’s ‘Investigation of Open Banking Limited’ report, which was authored by an independent corporate governance specialist, Alison White.
Published on 1 October it concluded that OBIE allowed ‘a culture of bullying and intimidation to prevail’, among a series of heavy criticisms of the organisation’s governance.
Henk Van Hulle joined as the organisation’s first chief executive last month, while Theresa Casey has joined as general counsel.
“We have already made positive organisational, governance and operational changes to ensure we are best placed to take these arrangements forward,” Van Hulle said in a press release welcoming the CMA’s recommendations. “We will consult key stakeholders and develop a detailed plan for transition, and I am confident that we are in a strong position to deliver what is needed to drive progress and maintain momentum in open banking.”
OBIE’s trustee and chair, Charlotte Crosswell, who was brought in last year in the wake of White’s report, said in the same statement that the organisation “looked forward to working with the new Joint Regulatory Oversight Committee over the course of this year.”
‘Mesh of regulators’
In terms of industry responses, Adam Jackson, director of policy at Innovate Finance, said the fintech association would be focused on seeking three outcomes for future UK open banking arrangements: ‘fully independent’ governance and a programme to complete open banking; a basis for opening up further data applications in payments, credit and financial management “that go beyond competition and create new benefits for consumers and businesses”; and a “long-term funding model and an ability to extend to other forms of finance and to cross-economy open data that can create value from combining other data sources (such as energy, travel, goods) with financial data.”
This latter point has crossover with the acceleration of progress in Australia, where energy and telecoms data are being brought into the country’s Consumer Data Right (CDR) and a consultation has just launched on extending CDR to non-bank lending as part of a push into open finance.
Maria Palmieri, head of public policy at fintech company Yapily, said that although it was “encouraging to see further clarity” from the CMA, “many questions still remain around the future of open banking”. She described a “mesh of regulators” that, she said, were making it “almost impossible for fintechs, banks and open banking providers to plan”.
In the regulators’ joint-statement they say that they plan to provide details during the second quarter of how they plan to engage, through JROC, ‘with stakeholders including industry participants and end-user representatives’.
Global Government Fintech’s dedicated open banking / open finance section
‘UK open banking body faces governance overhaul’ – our news story (5 Oct 2021) on the CMA issuing an ‘Update on Open Banking’ following the independent investigation into allegations at the Open Banking Implementation Entity (OBIE)
‘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
‘From OBIE to the “Future Entity”: UK consults on open banking governance’ – our news story (8 March 2021) on the CMA’s consultation on open banking’s future governance
WATCH OUR WEBINAR
Global Government Fintech held a webinar on 15 March 2022 entitled ‘Open Banking and Open Finance: What Role – And Benefits – For Governments?’ with the support of knowledge partner Microsoft.