The Financial Conduct Authority (FCA) has launched a Call for Input on the opportunities, and potential risks, presented by so-called ‘open finance’
Open finance refers to the extension of open banking-like data sharing and third-party access to a wider range of financial sectors and products. Open banking was designed to increase innovation and competition in banking and payment services. Along with the revised Payment Services Directive (PSD2), it introduced a secure environment enabling customers to consent to third parties accessing their payment account information or making payments on their behalf.
Open finance builds on the principles of open banking – the sharing of data which provides new ways for customers and businesses to make the most of their money. Open finance would extend those principles to a wider range of products, such as savings, insurance, mortgages, investments, pensions and consumer credit.
It is based on the principle that the data supplied by and created on behalf of financial services customers are owned and controlled by those customers. Re-use of these data by other providers takes place in a safe and ethical environment with informed consumer consent. This would mean that a financial services customer who consents to a third-party provider (TPP) accessing their financial data, could be offered tailored products and services as a result. Access would be provided by that customer’s current financial services provider under a clear framework of consent.
The FCA has however identified a number of potential risks, such as customers with certain characteristics being excluded from certain markets, exclusion of consumers who opt out of data sharing, and those consumers getting less advantageous pricing (a so called ‘privacy premium’). The Call for Input will launch a discussion on the opportunities and risks arising from open finance, what is needed to ensure it develops in the best interests of consumers, and what role the FCA should play.
The FCA has set up an advisory group to help drive forward its future strategy. It has also published the advice of this group, which comprises industry experts, consumer and business representatives, academics and Government departments.
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