Open Banking is an initiative launched by the Competition and Markets Authority (CMA) in 2017 following its Retail Banking Market Investigation. It allows consumers and SMEs to share their bank account information securely with trusted intermediaries who can then use this information to help them save time and money by finding better products to suit their needs. In turn, open banking aims to place competitive pressure on the larger, established banks who have accounted for over 80% of the current account market for many years.
Since its establishment, Open Banking now has around 3 million active users and it is estimated that more than half of small and medium businesses use tools employing Open Banking functionality.
In order to implement open banking, the CMA required the 9 largest current account providers in Britain and Northern Ireland respectively to create and pay for an implementation entity – known now as the Open Banking Implementation Entity – and to appoint an implementation Trustee, approved by the CMA, to oversee the process.
The implementation phase of Open Banking is nearing completion and the CMA is now consulting on what arrangements should be put in place for its governance in the next phase of its development.
Banking industry body UK Finance has submitted proposals that involve creating a new body, with a more broadly-based funding and governance model, to succeed OBIE. It is proposed that this body would take over OBIE’s functions, other than compliance monitoring, which will be handled separately. The CMA will consider these proposals as part of its consultation.
Interested stakeholders are being consulted on 3 main areas:
- Whether the successor organisation proposed by UK Finance proposals will be: independent and accountable; adequately funded; dedicated to serving the customer’s interests; and robust and sustainable;
- What compliance monitoring arrangements will it be necessary for the CMA to put in place going forward;
- What transitional arrangements should be adopted and when should the process begin.
Imran Gulamhuseinwala, Trustee, Open Banking Implementation Entity (OBIE) said:
“As OBIE comes to the end of the implementation phase, we look forward to working with the CMA, who will set out the next steps and we encourage any external stakeholders to contribute to the consultation. A regular appraisal of the progress of open banking implementation is crucial to ensure a healthy ecosystem and competitive market.”
“Open banking has been critical to supporting the UK’s emerging and growing fintech industry. We have pioneered the technology and as the Government said only last week, it is now taking the world by storm. The legislation that underpins open banking (PSD2) applied to all EU countries, yet three years on, the UK has more open banking providers than the whole of the EU combined. That’s a clear endorsement to how we’ve approached this.
“In 2018, OBIE were tasked to help build the framework and the standards that would allow open banking to flourish. I am delighted that we now have more than three million regular users of open banking enabled products, from money management tools to help consumers manage their personal finances better to accountancy products that are helping small businesses find cheaper Covid loans and manage cashflow. Currently, we are seeing one million new users of open banking every six months and growing innovation in areas such as payments.
“As we look beyond to open finance and smart data, it is terrific to see a clear recommendation from the Kalifa Review supporting the concept of a similar mandated body to oversee its implementation. It will be beneficial to UK fintech, but most importantly to consumers and small businesses.”
The CMA’s consultation will run until 29 March 2021.