Regulators back open banking advances

18th April 2023

The Financial Conduct Authority and the Payment Systems Regulator have launched a fresh push to encourage more competition in banking services via third-party firms.

As co-chairs of the Joint Regulatory Oversight Committee, the regulators issued a joint statement saying: “While significant progress has been made, there is more to be done to deliver the full benefits of open banking within retail banking markets, and beyond. They said they would set up a new body over the next two years to help boost uptake of open banking and widen it to other parts of the economy.

The Payments Associatio has also released a new whitepaper examining the current arrangements for sharing data to prevent economic crime in the UK, citing collaboration between regulated entities and between public and private sector is key to progress on data sharing to prevent economic crime. The report also presents the changes that may be introduced by the relevant provisions of the Economic Crime and Corporate Transparency Bill, now making its way through Parliament.

Global estimates suggest $2tn is laundered annually and fraud is now at epidemic levels. Illicit finance has become one of the world’s most prevalent businesses – economic crime is, in short, the crime of our times, and is increasingly being recognised as a threat to the UK’s national security. With the government having a firm spotlight on economic crime and fraud, the whitepaper, entitled ‘Data Sharing to prevent Economic Crime: Why you can now share data with confidence’, sets out clear recommendations about ways in which data sharing in the UK could be improved to prevent economic crime while taking account of existing and forthcoming privacy legislation, including collaboration both between regulated entities and between public and private sector is key to progress on data sharing to prevent economic crime.

Confidence in their ability to share data without risk of prosecution is vital for financial institutions to be able to combat economic crime.

The position of data providers to financial institutions, not just regulated entities, must be covered in both legislation and guidance as many financial institutions want to be able to use the latest technology and data and do not have the technical resources or are too small to do this for themselves.

The whitepaper also surveyed the membership of The Payments Association and identified several key issues which prevent the effective and privacy-conscious sharing of data to prevent economic crime: balancing data privacy and the need to share data, siloed data within firms, inconsistent formatting of data, criminal exploitation of technology, the cross-border nature of economic crime and the multiple data-handing laws across borders.

Most commentators agree that the very limited way that the financial industry is sharing information today is outdated and must be vastly improved if the UK wants to stop the rising tide of economic crime. A robust data-driven (preferably global) solution is, therefore, seen as critical. The whitepaper, In collaboration with Form3, finds the nation is now at now at a crossroads where many forces are aligning to open up the opportunity for more effective data sharing both within the public sector, within the private sector and between each sector.

Jane Jee, Lead of project financial Crime at The Payments Association, said:“The UK lacks the infrastructure to effectively defeat fraud and economic crime. Criminals operate without regard to our laws and our borders. Therefore, data sharing is a crucial part of any organisation’s armoury to stop them. This report is a must read for all financial institutions concerned about the rising tide of crime.”

Michael Mueller, Chief Executive Officer at Form3 – Benefactor for Project Financial Crime at The Payments Association, added: “The effective use of data sharing within the payment ecosystem can deliver a seismic shift in collaboratively combatting economic crime. This whitepaper reflects the current barriers to data sharing that financial institutions in the UK face as well as the opportunities that can be realised when these can be overcome.”

Tony Craddock, Director General of The Payments Association, said “We are very excited to share the results of this report. Every one of us has our payments data shared with agencies in the UK and sometimes elsewhere for the purpose of complying with anti-money laundering legislation and fraud protection, so it is vitally important that individuals, businesses and governments all understands what is possible, what doesn’t work and what is necessary to keep everyone involved in the payment landscape secure.”

Commenting on the update, Emma Steeley, Chief Executive of Freedom Finance, one of the UK’s leading digital lending marketplaces, said: “The mass adoption of Open Banking will improve financial outcomes for millions of financial services customers.”

“The UK is already a global leader in the use of Open Banking technology and its success is tangible evidence of the benefits that the fintech sector in this country can deliver for consumers when acting in lockstep with the government, regulators and the wider financial service industry.”

“It is encouraging to see the commitment in this roadmap to building up scale which is pivotal to Open Banking becoming ubiquitous in this country. To achieve this, the ecosystem needs to increase competition by offering consumers the widest possible selection of providers, products and services from the most reputable brands to deliver safety and choice.”

“In the consumer credit sector, Open Banking is significant because the widespread sharing of transaction data can help lenders deliver more personalised and suitable products by using a far wider set of criteria to assess customers. This not only matches products with customers in a bespoke manner but increases access to the credit market by generating a far more accurate risk profile of a customer through an increasingly holistic assessment of their creditworthiness compared to the narrow parameters used to generate credit scores.”

“For example, it means a person with a thin credit file through no fault of their own – like divorcees or expats returning to the UK – but posing no greater risk to lenders will not face exclusion from the market. We urge the industry to continue working with the government to push forward proportionate regulation, improve data sharing and support the development of payments capabilities. Only through fintechs, government and the retail financial services working together can we make Open Banking a truly great UK success story.”