As open banking gains traction, regulators are turning their attention to the next stage of development. Regulatory expert Polina Evstifeeva reviews initiatives which have driven the industry forward and asserts that frameworks for enabling the exchange of data and encouraging open finance could unlock further benefits
Open banking initiatives around the world have catalysed the development of a new ecosystem beyond payments and information services. Regulators globally acknowledge the benefits and the potential of opening up banks’ systems and certain clients’ information to third party providers (TPPs) to encourage competition and innovation.
The most noticeable initiatives have emerged from regulators with a strong agenda to drive reform, as evidenced by Europe’s second payment services directive (PSD2) and UK open banking, driven by the UK’s Competition and Markets Authority (CMA). The introduction in September 2019 of regulatory technical standards (RGS) on strong customer authentication (SCA) marked a further major milestone for open banking in Europe, following several years of intense work by the industry on PSD2 implementation programmes.
But regulatory approaches vary globally, with no consensus on whether open banking should be mandatory. Also, there are no established standards for application program interfaces (APIs), the technology underpinning open banking, or the certification and authentication of TPPs.
As the first edition of the Deutsche Bank white paper ‘Regulation driving banking transformation’ noted, PSD2 is the major driver of Europe’s move towards open banking (see box out: What is PSD2?). In Asia, the Monetary Authority of Singapore (MAS) has proactively encouraged financial institutions to develop and share their APIs openly, while Hong Kong also supports open banking. Asian regulators have broadly promoted similar initiatives as a means of driving competition and creating efficiencies, with a strong focus on industry collaboration.
In North America, a report by the US Treasury issued in summer 2018 recognised the need to remove legal and regulatory uncertainties that obstruct data sharing agreements. It also suggested the market, should lay the foundations for open banking and not the government. So while open banking in the US seems inevitable it is likely to have a different flavour to PSD2.