The UK Competition and Markets Authority (CMA) has issued a statement outlining its recommendations regarding the pursuit of Open Banking. The statement follows a consultation that was initiated in the spring of 2021. The CMA said its recommendations will guide a future entity that will pursue Open Banking and, will replace the Open Banking Implementation Entity (OBIE).
Additionally, the CMA, HM Treasury, the Financial Conduct Authority (FCA), and Payment Systems Regulator (PSR) posted a joint statement on plans for this forthcoming entity.
In 2017, Open Banking was launched in the UK with the goal of increasing competition and reducing structural friction in the retail banking sector. At that time, the CMA ordered the 9 largest UK retail banks to pay for and set up the OBIE.
Financial services data and control of this information are key to the success of Open Banking. The ambition is to migrate control of this information to consumers while streamlining switching between providers in a market historically controlled by a few very big banks. The emergence of Fintech has ushered in a new generation of financial service providers that are typically more adept at managing digital information. According to the UK government, as of January 2022, there were over 5 million users of services powered by Open Banking technology. The government predicts that by September 2023, 60% of the UK population will be using Open Banking payments.
In a public statement, Andrea Coscelli, Chief Executive of the CMA, called Open Banking a major success in the UK:
“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.”
The joint statement declared that Open Banking has led to more competition and innovation in financial services:
“It has brought real benefits by allowing consumers and businesses to share their data with trusted third parties who can help them manage their money more easily. Open Banking also lets consumers and businesses make payments directly from their accounts, providing a secure and cost-effective alternative to using card networks. It helps users make better-informed decisions and make the most of their finances with individual financial management dashboards. It also improves users’ access to credit, including for consumers in vulnerable circumstances. It has been a UK success story, with significant take-up and ever-accelerating growth. Many other countries have looked to the UK’s approach as they develop their own models.”
The joint statement said that the UK government and regulators are committed to maintaining leadership in the Open Banking sector, adding that it is critical that the new Open Banking entity is overseen effectively. HM Treasury is said to be working with the FCA and PSR on proposals for a permanent future regulatory framework for Open Banking.
The CMA’s recommendations for the future of Open Banking include:
- 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.
CI received a comment from Kat Cloud, UK Policy Lead for Plaid – a leading global Open Banking platform, responded to the CMA’s statement on Open Banking implementation:
“Many months since the Open Banking Implementation Entity’s (OBIE) final roadmap was published, we’re finally learning more about the CMAs plans to support further development of the sector. The announcement brings some clarity around how the CMA plans to support the transition to the Future Entity, with a new Joint Regulatory Oversight Committee due to be installed. However, while the Committee will undoubtedly help to provide some of the necessary oversight needed to ensure a smooth transition from the OBIE, key questions remain over just how the challenges facing the Open Banking project will be resolved. The sooner Open Banking is fully implemented, the sooner consumers can benefit from the innovation that open finance sparks. However, delays are likely to ensue from the proposed shared funding model and little has been said around the issue of solving poor API performance, which is hampering overall uptake. The CMA could also provide further clarity around its planned approach to deciding when the FEs role will be fulfilled.”
Cloud said that the statement helps to push Open Banking in the right direction but “falls short” of providing clarity on the project.
“The key thing now is for [the] industry to come together to ensure the Open Banking ecosystem transitions to the Future Entity with limited disruption and to avoid undoing the progress made to date.”
Damien Cahill, co-founder and COO of Vyne – a payments platform that utilizes Open Banking, shared his opinion that we are moving closer to the age of “Open Finance” with a regulatory environment where it may thrive:
“A time when 5 million consumers and businesses are already taking advantage of Open Banking services, this announcement is well-timed. Coordination between the Competition and Markets Authority (CMA) and the Open Banking Implementation Entity (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.”
In October 2021, the CMA issued a statement regarding an investigation of the OBIE regarding “serious allegations regarding bullying, harassment, discrimination, and victimisation.” The review claimed that OBIE leadership failed in managing the entity, allowing a toxic culture to persist but did not uncover any financial malfeasance or exploitation for private gain. The investigation concluded that the CMA, as well as the nine retail banks, “must accept their share of responsibility” for shortcomings in OBIE governance. At that time, the OBIE Trustee and Chair Imran Gulamhuseinwala submitted his resignation and a replacement was appointed.