UK: The Future of Open Banking

Regulators have pencilled in an ‘end of 2022’ deadline to draw up plans for a new entity to lead the further development of open banking. Will this help maintain the UK’s position as a global leader?

Open banking is undoubtedly a UK success story, with significant take-up and increasing growth; more than five million people in the UK are actively using open banking services. Indeed, many other countries have looked to the UK’s approach as they develop their own models.

But attention has now turned to how the open banking regime should evolve in the future.

At the end of March, the Competition and Markets Authority (CMA) unveiled recommendations for the next steps in the future oversight and governance of open banking. Under the plans, the Financial Conduct Authority (FCA) will jointly oversee the future of the UK’s ongoing open banking implementation, alongside the Payments Systems Regulator (PSR) – with HM Treasury and the CMA lending support.

The CMA’s recommendations will be taken into consideration in the design of a future entity to succeed the Open Banking Implementation Entity (OBIE) – the entity set up by the CMA in 2016 to deliver open banking, funded by Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, Natwest Group and Santander.

The future entity would build on the significant progress made to date by the OBIE to encourage innovation and support competition in retail banking. In summary, the future entity will:

● Have effective regulatory oversight, with a new Joint Regulatory Oversight Committee (JROC) to agree and implement the next steps led jointly by the FCA and PSR

● 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 broadlybased 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

● Be sustainable and adaptable to the future needs of the sector

● Have a system to effectively support the monitoring and enforcement of the Retail Banking Market Investigation Order 2017.

Andrea Coscelli, chief executive of the CMA, comments: “Open banking has been a major success in the UK, bringing innovative new services to retail banking and benefiting consumers, businesses and the UK economy. The CMA has carefully considered the appropriate future arrangements to boost open banking so that its significant benefits can be realised even more widely.”

While OBIE’s trustee and chair, Charlotte Crosswell, added: “We welcome the announcements by the government and regulators and the endorsement it gives for the future of open banking to our thriving ecosystem. There has been significant collaboration in developing the infrastructure, standards and ecosystem that we have in place today. We now need to drive forward competition and adoption and realise the benefits of innovation for consumers and businesses across the UK. We will look forward to working with the new Joint Regulatory Oversight Committee over the course of this year.”

INDUSTRY FEEDBACK

The CMA’s announcement has been largely welcomed with many saying clarity is critical for the evolution and further standardisation of open banking within the UK.

Adam Jackson, director of policy at the UK fintech community body Innovate Finance, said: “We welcome the CMA’s response on future plans for an open banking entity, which we have been calling for to provide the industry with greater clarity on the evolution in the UK. This is an important step in maintaining the UK’s position as a global leader in open banking.

While, Nanna Saito Nielsen, VP of banking operations at account-toaccount payments firm GoCardless, said: “We’re glad to see the CMA has published new guidance on the future of open banking. It’s not so much a resolution, however, as it is a signal that we’ve entered a critical phase of open banking development. We can’t afford to lose focus now.

“While it’s true that we’ve built the foundations of open banking, there are still fundamental issues which must be addressed to enable mass adoption, such as improving API uptime and creating a payer experience that is, at a minimum, good and consistent across banks. These details and how they are implemented are key. Inconsistent or generally non-conformant implementation will – even if just initially – disproportionately impact new or relatively young market entrants.

“We are also pleased to see a commitment to going beyond the original CMA order, in particular unlocking the potential of open banking payments which we believe will be a viable alternative to cards. But there are two areas which must be addressed and refined to ensure the continued success. The first is the question of funding: while we are encouraged to see a broader funding model, we have yet to see the details. Second, the statement describes the future entity with independent and accountable leadership. We would support a process whereby the joint regulatory oversight committee plays a central role in the appointment of an initial independent chair”

Jan van Vonno, research director at open banking platform Tink, said: “At Tink we’re pleased with the consultation response. The UK is the only country in Europe where the competition authority is directly overseeing the development of open banking. The currently bank-funded OBIE stands between banks, third-party providers (TPPs) and the regulators. Although the work of the OBIE has allowed for the creation of granular APIs and a thriving ecosystem, we believe there’s still much that can be done to unlock the value that open banking can bring – especially in payments.”

Damien Cahill, co-founder and COO of account-to-account payment solution for merchants firm Vyne, said: “As we are moving closer to the age of open finance, a favourable regulatory landscape is crucial for open banking to thrive. A time when five million consumers and businesses are already taking advantage of open banking services, this announcement is well-timed. Coordination between the CMA and the OBIE is critical for the evolution and further standardisation of open banking within the UK. It will empower users, giving them more control over their data and providing a market rich with competition and innovation to better meet their banking and payments needs. With the cost of living crisis rearing its head, it has never been more important to reduce friction and promote financial inclusion.”

Bee Thakur, UK public policy lead at one of the UK’s largest open banking provider TrueLayer, said: “For the UK to maintain its position as a centre of fintech innovation, the focus needs to be on the further development of the open finance ecosystem. We need the future entity that replaces OBIE to be well funded and empowered to hold all market participants to account to achieve this. “That requires robust oversight with governance that is independent from banks and other institutions where access to data and payments is being sought. This is critical because the incentives of market participants will not always be aligned with the wider objectives of open finance to create competition in financial services.

For the UK to maintain its position as a centre of fintech innovation, the focus needs to be on the further development of the open finance ecosystem

“During the transition phase to the future entity, the newly announced joint regulatory oversight committee (JROC) should use its collective powers on pressing issues such as the development of variable recurring payments (VRP) beyond sweeping. This will help us to continue to innovate and develop world class products and services, and in doing so create fair financial markets which give UK consumers the best choices.”

Maria Palmieri, head of public policy, Yapily, believes the future of open banking oversight is still unclear. “While it is encouraging to see further clarity from the CMA on the rollout of a Joint Regulatory Oversight Committee, many questions still remain around the future of open banking in the UK,” she said. “With the current mesh of regulators, it is almost impossible for fintechs, banks and open banking providers to plan for the future.

“This technology holds the power to transform the financial livelihoods of people and businesses. But to make that happen, we need to see the creation of a formal Open Finance Framework and further guidance on the future role of the OBIE, particularly on monitoring and enforcement. These steps would turbocharge further adoption of open banking solutions ensuring better and fairer financial services for everyone.