Earlier this month the United Kingdom’s Competition and Markets Authority (CMA) provided an update on the current state of open banking in the region. It comes after the release of a report from an independent investigator of allegations against the Open Banking Implementation Entity (OBIE).
The OBIE was established in 2017 by the nine largest retail banks in Britain and Northern Ireland and charged with implementing open banking, which enables consumers and SMEs to share their bank and credit card transaction data securely with trusted third parties. The report estimates half of UK small businesses and more than four million consumers uses services powered by open banking technology.
Last September Alison White was appointed to lead an investigation after a complaint raised allegations against the OBIE, open banking implementation trustee Imran Gulamhuseinwala, and some current and former senior OBIE staff members. White’s findings were provided to the CMA in August.
OBIE leadership allowed a culture highlighted by bullying and intimidation to proliferate, she found. Conflicts of interest were not properly addressed, and while there was deemed to be an unacceptable risk of them occurring, no evidence of actual exploitation for private gain was found.
According to the report, Gulamhuseinwala failed to ensure the OBIE was properly managed in accordance with the Retail Banking Market Investigation Order 2017. A lack of appropriate corporate governance had contributed directly to what happened at the OBIE as well.
But some of the blame is attributable to the 2017 order itself which provided little detail about OBIE governance arrangements. The trustee had consolidated too much power and there were inadequate checks and balances against the office. Further failings in the system of risk management, internal control, management of culture and values and effective workforce engagement were also found.
“The investigation therefore also concluded that the CMA, and the nine retail banks who helped establish OBIE, must accept their share of responsibility for not putting in place stronger governance mechanisms from the outset, for lack of attention to issues of governance throughout the programme and for not improving the governance when it became clear that the project was becoming more complex and far longer than originally anticipated,” the CMA said in a statement.
Following the report release, Gulamhuseinwala resigned as open banking implementation trustee and chair and was replaced by Charlotte Crosswell. Additional directors will be appointed in a bid to increase oversight levels. One such director, Kristin Baker, will lead a review charged with identifying ways the CMA can revise its approach to designing, implementing and monitoring remedies in its market investigations.
“The investigation has identified significant failings that require a swift and substantial response,” CMA chair Jonathan Scott said. “It found that serious allegations – including of bullying, harassment, discrimination and victimization – were not investigated properly by the OBIE and it concluded that this reflected failures in both the management and the governance of the OBIE. This is simply unacceptable and we agree with Alison White that everyone involved needs to accept their share of the responsibility for this and act on the lessons learned.”
Scott acknowledged clear change is needed.
“Given my background advising the industry on fintech and innovation I am excited to bring my experience to the OBIE trustee role,” Croswell said. “The success of open banking, and what the OBIE team has already achieved with the industry and policymakers, has played a critical role for consumers and SMEs across the UK. We must look to leverage this in offering openness and competition in financial services and be ambitious on our journey towards open finance and smart data.”
Croswell has a strong background in capital markets and technology, with experience as a CEO, board advisor and non-executive director. The former CEO of Innovate Finance, she worked on the Independent Strategic Review into UK Fintech that was published in February 2021. Croswell represents UK Fintech on the Department for International Trade’s Financial Services Trade Advisory Group.
The use of open banking in the UK is growing, with estimates suggesting 60 per cent of the citizenry will be using it by 2023. The open banking ecosystem includes more than 330 regulated firms including more than 230 third-party service providers and close to 100 payment account service providers. Together these entities represent more than 95 per cent of current accounts, the report states.
Several areas for improvement were identified. More innovation is needed to ensure continued growth in the use of open banking, especially in account-to-account payments. Better oversight over the organization is required, including for regulators to prioritize appropriate interventions when required. The authors suspect future oversight should be shared with the Financial Conduct Authority and Payment Systems Regulator.
In the future, the interests of all stakeholders, including consumers and small businesses must be adequately and fairly represented. The future board must develop a vision that takes into account regulatory considerations and display greater transparency. Its composition must reflect the OBIE’s wider scope. More detailed monitoring is also under consideration, as is a more broadly-based and sustainable funding model.