Introduction to Open Banking
The Australian Government passed its legislation on 1 August 2019 to provide new rights for consumers and small businesses to their data from July 2019. The Treasury Laws Amendment (Consumer Data Right) Bill 2019 (Cth) (Act) provides a new "Consumer Data Right" (CDR) which will have a major impact on the banking sector. The CDR relating to banking data is usually referred to as Open Banking.
We summarised the background on this legislation in our alert on 1 December 2018 here: Australian Consumer Data Right law: what you need to know.
The energy and telecommunications sectors will also soon be within the scope of the new laws.
The text of the actual legislation passed differs from the draft legislation released last year and also differs from the text of the enacting bill which had been first introduced into Parliament in early 2019. That draft legislation lapsed due to the Federal election in May 2019.
The regime will give customers more control and choice over data held about them. The Government considers that this will promote competition and innovation in the affected sectors as customers will be able to change their suppliers more easily if they can direct their current supplier to provide their data to other suppliers or comparison services.
The CDR regime will impose significant additional privacy and data sharing obligations and penalties for breach. The geographic scope of the proposed law is broad as it will apply to CDR data generated or collected both in Australia and outside Australia.
In this article, partners Robyn Chatwood and Ben Allen, who lead the Dentons Australian privacy practice, explain.
What is a Consumer Data Right and what data must be shared at a customer's request?
- Consumer data rights are rights of consumers to direct their supplier (such as their bank) to share with others the supplier's information held about the consumer.
- Once a sector is designated under the
CDR regime, Product Data and Consumer Data must be disclosed on
request of the customer.
- Product Data is CDR data which doesn't relate to any specific consumers – so this is generic product information of the supplier such as terms and conditions or the availability of a product.
- Consumer Data is CDR data which is specific to the consumer such as name and contact details, account details and transaction details.
- As noted below, certain classes of information or data will initially be excluded from the Open Banking regime – being certain credit information and "materially enhanced information".
Who has Consumer Data Rights?
The definition of "CDR consumer" is broad – a consumer can be individuals, businesses and trusts. Small and medium sized businesses (SMEs) will have CDR rights. The Act extends coverage to those business customers and individuals who are "reasonably identifiable" from CDR data.
Sectors that will be regulated and reach outside Australia
The Act provides that the Australian Treasurer can designate industry sectors to which the CDR will apply ("Designated Sectors"). The Australian Government has committed to applying the CDR regime to the banking, energy and telecommunications sectors, and eventually across the economy.
Currently, all Authorised Deposit-Taking Institutions (ADIs), other than foreign bank branches, will be regulated data holders and so banks, credit unions and building societies will need to comply with the new laws.
The Australian Government has released for consultation a draft designation instrument1 designating the CDR regime applying to the banking sector once the final instrument is registered.
Of interest is that the draft designation instrument provides that two categories of data are to be initially excluded from the Open Banking regime.
- Certain credit information: Certain credit information 2 such as credit infringements, court proceedings and information about personal insolvency etc. is to be excluded.
- Materially enhanced information: Data holders will also not be required to disclose "materially enhanced information" which is defined as information where
"...the information was wholly or partly derived through the application of insight or analysis to...[the] source material; and...that insight or analysis...was applied by, or on behalf of, the entity that holds the information or on whose behalf the information is held; and rendered ...significantly more valuable than the source material".
The Explanatory Materials to the draft designation instrument provides examples of information that is considered to be and to not be materially enhanced.
- Examples of material enhanced
- The outcome of an income, expense or asset verification assessment.
- Categorization of transactions as being related to groceries or rent.
- Significantly improved descriptions of transactions utilising geolocation or business name data from external sources.
- Examples of information which
is not material enhanced information:
- A calculated balance.
- An amount of interest earned or charged.
- A fee charged.
- A reference number, including a routing number, a clearing house number or a swift code.
- Information identifying a person, body, product, transaction or account.
- Data on authorisations.
- The categorization of source material based on a feature of the product to which it relates, including categorization by the fees or interest rates applicable to the product.
- Information that results from filtering or sorting source material by reference to a date, period, amount or classification.
Legislative Framework and Regulators
The Act sets out the overarching regulatory framework and contains the power of the Minister to designate the sectors to which it will apply. It also sets out the framework for there to be rules and standards governing how data is to be shared and the technical standards for sharing of the CDR data.
- Rules and Privacy Safeguards
of the ACCC and OAIC:
- The Act is supplemented by further rules which are being developed by Australia's consumer regulator, the Australian Competition and Consumer Commission (ACCC).
- The ACCC will have an enforcement role and its consumer data rules provide more detail about how the regime will work.
- Draft CDR Rules released by the ACCC provided that product reference data (PRD) was due to be made available by the four largest banks (being Commonwealth Bank, National Australia Bank, Australia and New Zealand Bank and Westpac) from 1 July 2019. These banks have commenced voluntarily publishing PRD.
- The ACCC, as lead regulator, will be
supported by the federal privacy regulator in Australia, the Office
of the Australian Information Commissioner (OAIC)
and certain privacy safeguards.
- The Act provides for new enhanced "Privacy Safeguards" and an accreditation process for data sharers.
- The Privacy Safeguards will be incorporated under the Australian Competition and Consumer Act 2010 (Cth) and they will apply irrespective of whether data belongs to an individual or a business – a departure from the current approach of the Australian Privacy Principles which are established under the Privacy Act 1988 (Cth) and which regulate "personal information".
- Breaches of the new privacy safeguards will attract civil penalties and the OAIC will have new powers to enforce them through the courts.
- The OAIC has said that it plans to release the first stage of its draft privacy safeguard guidelines for comment in September 2019.3
- Technical Standards:
- Technical standards for the CDR are to be designed by a new Data Standards Body established to create data standards for how data is to be shared.
- Data61 (the data arm of CSIRO who is the Australian Government's research organisation) has been appointed as the interim standards body and has published a "working draft" of the standards that will underpin the new regime.
- Data61 has been working with the ACCC and the Office of the Australian Information Commissioner to develop draft technical standards to design application program interfaces (APIs) to allow consumers to access and share data with accredited parties under a CDR regime. Data61 has posted a set of draft banking and common application program interface (API) standards on GitHub4guided by four "outcome principles".5 APIs must also comply with eight "technical principles".6
When will Open Banking commence and what is next?
Timing for commencement of the regime will differ amongst the various players in the banking sector7. The four largest Australian banks will start first with the other ADIs to follow. The Australian Treasurer has announced the following timetable:8
- From July 2019:
- The four largest Australian banks will be required to publicly share the product data (being the PRD) about credit and debit cards, deposit accounts and transaction accounts.
- The ACCC and Data61 will launch a pilot program with these banks to test the performance, reliability and security of the Open Banking system with consumers and fintechs being invited to participate in these pilots.
- From February 2020:
- Product and consumer data for mortgage accounts is to be made available.
- Banks will be required to publicly share consumer data about credit and debit cards, deposit accounts and transaction accounts.
- From July 2020:
- By the four largest Australian banks:
- Access to product data for personal loan and other accounts.
- Access to consumer, account and transaction data for personal loan and other accounts.
- By all other ADIs:
- Access to product, account and transaction data for credit and debit cards, deposit accounts and transaction accounts.
- By the four largest Australian banks:
- From February 2021:
- By all other ADIs:
- Access to product, account and transaction data for mortgage products.
- By all other ADIs:
- From July 2021
- By all other ADIs:
- Access to product, account and transaction data for personal loan and other accounts.
- By all other ADIs:
Now the law has been passed, the designation instrument will be finalised and issued together with the Rules, Technical Standards and Privacy Safeguards. Participants in the new regime, such as the various entities who are to be accredited to receive data and the ADIs who are data holders, will then undergo testing to ensure the data exchanges are accurate and compliant.
Concurrently, the ACCC has commenced consultation9 on the CDR regime applying to energy sector. The telecommunications sector will be next.
What penalties will apply for breach?
Penalties of up to AU$420,000 (or AU$2.1 million for businesses) may be imposed for misleading conduct relating to the transfer of CDR data and to breaches of the new Privacy Safeguards.
What to do now?
Now that the laws have been passed, those in the banking, energy and telecommunications sectors should prepare for the new rules by doing the following.
- Consider if and when you are caught by the new laws and what data (and where it is held around the world) will be within scope.
- Plan how to comply by reviewing operations and considering what systems or processes would need changing or implementing.
- Consider how to leverage CDR data to take advantage of opportunities provided by the new laws and consider if you hold valuable data sets which might be required to transfer or which may be excluded from requirements to transfer.
- Implement your new functional capability, compliance systems and processes (e.g. by developing APIs that meet the technical standards). Consider how to make product data available via an API in accordance with standards made by the Data Standards Body.
- Establish procedures for dealing with consumer requests for CDR data transfers and a CDR policy to govern them.
- Train staff on the new laws and how to comply with them.
- If not already, become a member of the external dispute resolution scheme for the resolution of disputes involving the CDR – for Open Banking that will be the Australian Financial Complaints Authority (AFCA).
Where to get help
1. The Consumer Data Right (Authorised Deposit-Taking Institutions) Designation 2019 (Cth).↩
2. As described in paragraph 6N(d), (i), (j) or (l) of the Privacy Act 1988 (Cth) and new arrangement information within the meaning of subsection 6S(2) of the Privacy Act 1988 (Cth).↩
3. See https://www.oaic.gov.au/consumer-data-right/about-the-consumer-data-right/↩
4. See https://consumerdatastandardsaustralia.github.io/standards/#introduction↩
5. These are that 1. APIs are secure; 2. APIs use open standards; 3. APIs provide a good customer experience; and 4. APIs provide a good developer experience.↩
6. These require APIs to be 1. RESTful – that is, be an API that uses HTTP requests to GET, PUT, POST and DELETE data; 2. implementation agnostic; 3. simple; 4. rich in capability; 5. performant – so allowing the API to define mechanisms that enable performance metrics to be communicated and actions; 6. consistent – so a standardised design; 7. version controlled and backwards compatible; and 8. Extensible – so one which allows users or developers to expand or add to its capabilities.]↩
7. See http://treasury.gov.au/consumer-data-right ↩
8. See http://jaf.ministers.treasury.gov.au/media-release/077-2018/↩
9. See https://www.accc.gov.au/focus-areas/consumer-data-right-cdr/energy-cdr↩
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