Open banking continues to develop, as do the regulatory frameworks that aim to foster its use.
In countries like the UK or Europe, this process is driven by regulation and regulators will likely bring new developments in the second half of 2022. In the US, open banking has been mostly driven by the industry, but some federal regulators are considering enacting new rules that would give customers more power to share their financial data. Let’s take a look at the new laws and regulations that may be introduced after the summer holidays.
The United States does not have a specific federal law mandating open banking solutions, but the Consumer Financial Protection Bureau (CFPB) may soon change that. Director of CFPB Rohit Chopra has long advocated for new rules that make it easier to share consumer financial data with multiple providers.
Since 2021, the CFPB has been working to design new rules under Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that would effectively implement open banking solutions in the United States. However, the project suffered some delays, among other things, because the agency is grappling with how to handle consumer privacy and data protection issues, according to people familiar with the matter.
Read more: CFPB faces fraud and privacy concerns in Open Banking Rules
However, last June, the CFPB announced its Spring Regulatory Agenda and it included draft regulations under Section 1033, suggesting that the first rule on open banking could be ready by Spring 2023.
The next step in the CFPB’s rule-making process is a review by a panel of small businesses. The CFPB will conduct the panel’s review in November according to an agency’s schedule outlined in the regulatory program.
The Small Business Regulatory Enforcement Fairness Act requires the CFPB to seek input from a panel of small businesses on new regulations that may affect them.
The panel has 60 days to submit a report to the CFPB, after which the agency can issue a draft rule. So the timeline could be tight for a new rule by the end of the year, pushing any proposal back to early 2023.
Read more: CFPB Takes First Steps in Open Banking and Big Tech Review
Open banking in Europe is governed by the second Payment Services Directive (PSD2). Passed in 2015, the law established basic rules for data sharing, but EU regulators plan to revise the text to reflect technological advancements that have taken place in recent years.
With this goal in mind, the European Commission launched a consultation in May to gather feedback from stakeholders on the effectiveness of PSD2 and areas that would benefit from revision. The consultation will end on August 5 and even if the results are not binding, the contribution would help the regulator to design the new PSD3. According to the consultation, some areas of interest for the commission are strict customer authentication rules and the reduction of fraud. Interestingly, the European Banking Authority has asked the Commission to explore the possibility of establishing standard application programming interfaces (APIs) to facilitate the adoption of open banking and open finance.
There is no statutory timetable for a legislative proposal, but some EU commissioners have suggested that the first draft of PSD3 could be ready before the end of 2022.
The commission has also launched a consultation on open finance, which could extend the principles of data sharing beyond bank accounts and extend them to other financial products like pensions, wealth management and insurance. However, a rule on this space is not likely in 2022.
Read more: EU regulator launches PSD3, consultations on open finance
Read more: PSD3 set to mandate API standardization
The UK is arguably the country with the most comprehensive open banking regulatory framework. The term “open banking” was coined in the UK when the Competition and Markets Authority mandated the nation’s largest banks to share their customer data with other providers in 2016.
The UK is in the midst of a regulatory and institutional transformation that the government says will push open banking more than in any other country.
The Treasury, the Financial Conduct Authority and the Payment Systems Regulator (PSR) are designing a new regulatory entity that will be responsible for promoting open banking in the country. Regulators expect this entity to be fully operational in early 2023. The PSR is also overseeing the design and implementation of a new payment architecture that will also foster open banking by establishing common APIs, although this new infrastructure will take a few more years. be fully implemented.
Read more: UK seeks guidance on new open banking roadmap, regulator
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