Her Majesty's Treasury announced that the Competition and Markets Authority (CMA) of UK published an update on the governance of open banking system. This update sets out progress in strengthening corporate governance at the Open Banking Implementation Entity (OBIE), following an independent investigation and the status of government’s consideration on the future governance of open banking. The investigation identified a number of failings related to the management of OBIE. The investigation also found that a weak governance framework and a lack of appropriate corporate governance had contributed directly to what happened at the OBIE. This update is focused on changes with respect to corporate governance and looks ahead to the longer-term future of open banking.
The powers under the Retail Banking Market Investigation Order 2017 (the Order) will change as its implementation phase comes to an end over the course of next year. CMA will retain certain direct regulatory powers, including regarding the ongoing maintenance of open banking and monitoring compliance; however, there will need to be an effective longer-term framework for the future. In this update, CMA also sets out a number of key high-level principles that should underpin the future arrangements of open banking. The key principles are related to competition and innovation, regulatory collaboration and oversight, stakeholder interests, leadership, governance, reporting, and transition. CMA also considers that it is important to set clear regulatory expectations for the longer-term. It is, therefore, working with other regulators, alongside relevant government departments, to develop a statement that will set out a clear joint vision for the future of open banking and its governance. This vision is intended to help address the period between the end of the implementation phase of open banking and any future regulatory framework that addresses areas beyond retail banking. CMA is planning to publish a further update at the end of the year or in early 2022.
With respect to the appropriate approach to future oversight and governance, one of the ongoing considerations is the setting up of a Future Entity, to replace OBIE in its current form; the Future Entity would serve the needs of a significantly larger number of financial institutions by enabling an Open Data and payments market. Setting out a detailed position on the Future Entity is also anticipated at the end of the year or in early 2022. CMA highlights the need for sufficient regulatory oversight of the Future Entity, including close collaboration between regulators and the ability for regulators to set expectations and prioritize appropriate interventions when necessary. This will require coordinated efforts to design and put in place appropriate future governance arrangements, which will also need to allow sufficient flexibility for future developments. It anticipates that future oversight could be shared with the Financial Conduct Authority (given its current regulatory remit, which includes payments and data-sharing in relation to Open Banking and as the anticipated lead regulator for Open Finance) and the Payment Systems Regulator (as the lead regulator for payment systems), both playing a key role alongside the CMA. There will also be a need for wider industry and stakeholders to work cooperatively with regulators to help ensure its continued success.
In this recent communication, CMA also notes that, while it is still relatively early days in its development, it has been estimated that, by September 2023, 60% of the UK population will be using Open Banking. The Open Banking ecosystem in the UK now comprises more than 330 regulated firms made up of over 230 third-party providers of services and more than 90 payment account service providers who together account for over 95% of current accounts. Moving forward, it will be critical that this vibrant ecosystem, along with the benefits it generates for people, businesses, and the wider economy in helping to open up competition and forge the way for new services to be offered, continues to thrive and develop. So far, Open Banking has been a major success in securing positive outcomes for consumers and small businesses and improving competition in retail banking and has significant wider transformative potential as it continues to develop.
Keywords: Europe, UK, Banking, Open Banking, Governance, CMA, Open Data, FCA, OBIE, Future Entity, HM Treasury
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