On 16 December 2022, the Joint Regulatory Oversight Committee (The Committee) published a joint statement in regard to the future vision and governance of open banking, including proposals on establishment of the new Open Banking Entity.
The Committee was first announced in March 2022, with HM Treasury (HMT), the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) forming the new Joint Regulatory Oversight Committee (JROC). The creation of this Committee is seen as the Government and the regulator’s commitment to build on the success of Open Banking (OB).
A recap – ‘Open Banking’ and objectives of the Committee
A 2016 report published by the CMA on the UK’s retail banking market identified that older, larger banks did not necessarily compete hard enough to gain customers’ business, while newer banks found it hard to access the market and/or grow once accessed. One of the CMA’s recommendations to tackle this problem was ‘Open Banking’.
A term used within fintech, Open Banking refers to the use of open application programme interfaces (APIs) which enable developers to build and tailor applications (apps) and services to the specific needs or financial circumstances of people or institutions, thus allowing the consumer to move and manage their money more easily and enabling more informed choices and decision making.
The primary objectives of the Committee are currently centred around the development of OB’s vision and to make recommendations on the design of the future Open Banking Entity (“Future Entity”)
The March statement set out the Committee’s expectations in relation to OB and how it intends to transition from;
- its current state model, in which the current Open Banking Implementation Entity (OBIE) is overseen by the CMA, to
- an interim state, in which a future entity will be overseen by the Committee (for non-Order Activity) and by the CMA for Order Activity), to ultimately
- the establishment of a long-term regulatory framework for OB.
Vision of the Committee – 3 Main Priorities
Overall, the Committee is determined to ensure that the benefits of Open Banking are fully realised, fostering greater competition and innovation for consumers, businesses and the broader economy. The Committee believes that Open Banking may play a significant role in maintaining the UK’s international competitiveness (a secondary role recently announced for regulators as part of the Edinburgh Reforms – see our article here) and leadership in this field.
In this context, the Committee identified three main priorities to deliver its vision of Open Banking:
- Unravelling the prospects of OB payments to support competition and innovation by creating an increase and diverse selection between payments methods and enabling new and stimulating opportunities to build the next generation of payments, including more efficient and tailored services.
- Adopting a model that is scalable for future data-sharing propositions.
- Establishing a sustainable footing for the ongoing development of the Open Banking ecosystem.
What are the key responsibilities of the Future Entity?
The Future Entity will be the central authority that will assist in the development and progress of the Committee’s vision for OB. The key responsibilities of the Future Entity will include the following:
- Enabling the development of new open banking products and services, while also enhancing the benefit to consumers and businesses by ensuring appropriate innovation and competition within the financial services sector.
- Providing and maintaining the technical infrastructure and critical services required for Open Banking, and the improvement and development of existing and new technical standards.
- Ensuring compatibility with the activities of other key actors in the ecosystem.
What is the design of the future Open Banking entity?
- Once established, the Future Entity’s structure would be underpinned by a long-term regulatory framework for OB, including regulatory powers for the relevant regulator. Until the establishment of this long-term regulatory framework, an interim state will exist whilst the CMA Order remains in place.
- In the long-term, the Future Entity’s funding and liability arrangements shall be broad-based and equitable with the funding of the entity shared across all users, efficiently and proportionately that reflects the level and structure of the underlying costs. Furthermore, any potential charges should not disincentivize innovation or take-up of services.
- The Future Entity shall be independent, and its governance arrangement should be supported by a set of values and cultures that includes an emphasis on integrity and the promotion of ethical behaviours. The purpose of the Future Entity, which includes the development and growth of Open Banking, should be reflected within its governance arrangements, which should be in place in the interim state as well.
What are the Next Steps?
- The Committee is expected to issue a statement in Q1 2023 in which it shall set out the common authorities views and recommendations, as well as its recommendations in relation to the design of the Future Entity (in both the interim state and as part of the long-term regulatory framework). A roadmap to deliver the Committee’s vision is also expected as part of this statement.
- A Strategic Working Group (SWG), convened by the Committee, is currently undertaking extensive analysis, reflecting the range of stakeholder views on the current gaps and potential short and long term solution in OB, as well as the structures required to continue to grow and develop OB. The SWG will submit a final report to the Committee by January 2023. This report will play a pivotal role and will be an essential source to JROC’s thinking.
How can Complyport help?
If you have any questions about Open Banking or upcoming reforms in 2023 or you think your firm may require assistance, please contact Jan Hagen via jan.hagen@complyport.co.uk to book a free consultation.
About Complyport
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