The Competition and Markets Authority (CMA) has unveiled recommendations for the next steps in the future oversight of open banking.
These recommendations will be taken into consideration in the design of a future entity to succeed the Open Banking Implementation Entity (OBIE). The future entity would build on the significant progress made to date by the OBIE to encourage innovation and support competition in retail banking.
The CMA, HM Treasury, the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) have also published a joint statement outlining their plans for oversight of the future entity, building on the CMA’s recommendations, including the establishment of a Joint Regulatory Oversight Committee.
The CMA’s recommendations are that the future entity should:
- have effective regulatory oversight, with a new Joint Regulatory Oversight Committee 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;
- have a clear purpose articulated by the 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;
- 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, said: “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. We have today outlined the core principles that will ensure the new entity successfully picks up the reins.”
A global leader
Open banking was launched in the UK in 2017 as part of a package of remedies following the CMA’s market investigation into retail banking. The CMA ordered the nine largest retail banks in Great Britain and Northern Ireland to pay for and set up an independent Open Banking Implementation Entity.
Open banking enables consumers and businesses to share their bank and credit card transaction data securely with trusted third parties who are then able to provide them with applications and services which save them time and money. In a market where larger, established banks have accounted for over 80% of the current account market for many years, open banking encourages account switching and drives down costs for small and medium businesses, boosting competition and innovation.
The UK has been a global leader in this area and, as of January 2022, there were more than million users of services powered by open banking technology. It has been estimated that by September 2023, 60 per cent of the UK population will be using open banking payments.
The industry response
Commenting on the announcements, the OBIE’s trustee and chair, Charlotte Crosswell, said: “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.
“The announcement underlines government and regulators’ commitment to the future success of open banking, and the foundations for open finance and beyond. We will look forward to working with the new Joint Regulatory Oversight Committee over the course of this year.”
Jan van Vonno, research director at Tink added: “At Tink we’re pleased with the consultation response by the UK’s CMA and the Treasury’s announcement. It is important for the entire ecosystem to understand what the next steps are for the open banking regime.
“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.
“Now that the CMA Order 2017 is finally nearing its completion (with the implementation of sweeping being the last item on the roadmap), the role for the OBIE is also coming to an end under its current mandate. We believe it is up to the ecosystem (financial institutions, third-party providers, beneficiaries and consumer organisations) to come together and define a new direction for the OBIE.
“The announcement of the JROC will help ensure a smooth transition towards a Day 2 scenario where the ‘Future Entity’ can leverage the existing infrastructure to expand the current capabilities into the realm of open finance.
“While the CMA will continue to monitor the reporting of management information by the banks, it is now up to the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) to step forward and oversee the Payment Services Regulations 2017 (PSRs 2017) while supporting the development of open finance.”
The next steps
Damien Cahill, co-founder and COO, Vyne, believes the announced plans will be critical for the evolution and further standardisation of Open Banking within the UK.
He 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 the UK’s largest open banking provider, TrueLayer:
“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.
“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.”
Despite this, 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.”