The Consumer Financial Protection Bureau (CFPB) released final Open Banking rules today. The new rules impact banks, brokerages and more, and go into effect over the next few years.
Open Banking or Open Finance addresses the topic of data generated or provided by consumers to financial services firms. The new rules seek to return control of this information back to the consumers, who will soon have control as to who has access to the information – and who does not. Consumer control of this information may make banking and other services more competitive as it will be easier to migrate to another provider that may offer a superior service. At the same time, some observers are concerned about the approach being taken by the US.
CI received several comments from experts in the sector
Casey Jennings, a partner at Seward & Kissel, specializes in banking and securities laws and advises many financial firms. This includes Fintechs and traditional firms. Jennings had this to say about the rules.
“This rule is a solution looking for a problem. Regulator-driven open banking (as opposed to market-driven open banking like we have in the US) was developed in Europe to spur novel financial solutions in a market dominated by a small number of banks. But this simply isn’t needed in the U.S. when options abound and other regulators are trying to limit the scope of Fintech activities.”
Jennings said the experience in the UK has been choppy as the UK antitrust authority “put forward data-sharing requirements as a regulatory remedy after a market investigation of the retail and business-banking sectors found weak competitive dynamics, including a high degree of market concentration and an extremely low switching rate.”
“But the UK has 9 dominant banks – the U.S. has thousands, and the dual-banking system is pro-competitive by design,” explained Jennings. “Regulator-driven open banking doesn’t make sense here.”
Jennings added:
“On the other hand, large data aggregators have an outsized market share in the U.S. Making bank systems talk to each other could potentially decrease the power and influence of the aggregators.”
David Silberman, a senior advisor at the Financial Health Network and the former Acting Deputy Director of the CFPB shared a different perspective, viewing the rules as a positive move.
“The Consumer Financial Protection Bureau’s rule on open banking is an important step forward in creating a system for data sharing. We are disappointed in certain aspects of the rule such as the exclusion of EBTs and the failure to allow the sharing of deidentified data for research purposes. The rule leaves a fair amount of ‘white space’ regarding when and how often data providers must share information. How that white space gets filled will determine the extent to which the rule can enable products and services that improve consumer financial health.”
As reported earlier, the Financial Technology Association shared a comment in support of the CFPB Open Banking rules.
