"Open banking", the emerging financial services model seeking to enable secure third-party access to payment accounts and payment information, is an area that continues to quickly develop globally. We have previously outlined some of these developments in an earlier post.
This post provides an update on some further recent developments in the UK, US and Canada, namely (i) in the UK, the publication by the Open Banking Implementation Entity (OBIE) of Open Banking Standards 3.0 ("3.0"), (ii) in the US, the publication by the Department of the Treasury of its Report on Nonbank Financials, Fintech, and Innovation (the "Treasury Report") and, (iii) in Canada, the implications for open banking of the recent Toronto Real Estate Board (TREB) Supreme Court of Canada decision.
The term "Standards" within the context of the Open Banking Standards refers to open standards for Application Programming Interfaces (APIs) in UK banking. Such Standards will facilitate the use of client bank data by Fintechs in order to drive innovation to benefit banking customers with a broader variety of products and services while providing clients with a greater degree of control over the use of their data in the context of such products and services.
The nine largest banks and building societies in Great Britain and Northern Ireland based on the volume of personal and business personal accounts comprise what is known in Open Banking terminology as the "CMA 9". To-date, the CMA 9 have been implementing the previous versions of the Standards, including the launch of the prior version in March of 2018, which deals with personal and business current accounts and the use of open APIs as an alternative interface for customers to access their bank account(s).
Open Banking APIs allow personal and business banking customers to use web and mobile applications developed by regulated third party providers to connect to and move money between bank accounts. Open Banking API innovations include the advent of financial management services which should drive consumer savings, as well as achieving faster, more secure online payments.
Impact of the new 3.0 Standard
Previous versions of the Standards covered business and personal current accounts; whereas Version 3 covers all products with payment capabilities (for example, credit cards, pre-paid and e-wallets) in any currency.
The implementation of 3.0 will allow a broader range of account providers to comply with PSD2 (Second Payment Services Directive); an observation that was made by OBIE Trustee Imran Gulamhuseinwala: "The Open Banking Standards are now not only a driver of significant innovation and competition in the UK but also offer account providers a well-supported route to PSD2 compliance."
In addition to the business and personal accounts that have been affected by the Open APIs developed to-date, Version 3.0 of the Standards will ultimately grant consumers more choice when it comes to payment products and services, as stated by Gulamhuseinwala: "The ability to access a far broader range of customer accounts will greatly enhance the services that firms can build and, ultimately, make it easier for customers to move, manage and make more of their money."
Innovation leaders hope that the regulation and standardization of Open Banking APIs will encourage global organizations to leverage economies of scale to implement their Open Banking and PSD2-compliant solutions across their enterprises internationally, which could prompt regulators in North America and elsewhere to follow suit by adopting similar standards and requirements, potentially providing a greater degree of freedom and choice to consumers of financial products and services on a global basis.
The recently issued Treasury Report in the US contains a number of detailed recommendations relating to the regulation of financial services, which are detailed in our prior post. Notably, these including a number of recommendations relating to consumer access to financial data, including in respect of the treatment of data aggregators, the use of screen scraping, the need to develop best practices around consumer disclosure for the use of financial data, and the potential need to address data standards.
In Canada, the federal government is currently undergoing a review of open banking to assess whether it could have a positive impact on consumers while considering the risks to consumer privacy, data security, and financial stability.
While issued in the context of real estate data, the recent decision by the Supreme Court of Canada to uphold the Competition Tribunal's prior order requiring the Toronto Real Estate Board (TREB) to permit the public disclosure of home sale prices is also potentially relevant to the discussions and considerations around open banking in Canada. As noted in our legal update, one of the key takeways of this decision is that "controlling significant amounts of data can be a source of market power and that restrictions on the access and use of data can ultimately act as a barrier to entry", which has also been one of the drivers of open banking. The Competition Bureau's Fintech report released in 2017 expressed support for open banking. Accordingly, the TREB decision could be of relevance in the consultation process on open banking in Canada.
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