BCBS published a report that monitors the evolving trend of open banking and application programming interfaces (APIs) in certain Basel Committee member jurisdictions. The report presents key trends and challenges identified in this area through the information gathered from 25 Basel Committee members from 17 jurisdictions, with focus on supervised banks and customer-permissioned data. The report also discusses the implications of these developments for banks and bank supervision. The report builds on the findings of BCBS paper on the implications of fintech developments for banks and bank supervisors.
The following are the key findings of the report with respect to the open banking frameworks:
- Traditional banking is evolving into open banking. A number of jurisdictions have adopted, or are considering adopting, open banking frameworks to require, facilitate, or allow banks to share customer-permissioned data with third parties.
- Open banking frameworks vary across jurisdictions in terms of stage of development, approach, and scope. Open banking is still in the early stages of development in a number of jurisdictions. Approximately half of the Basel Committee members have not observed significant open banking developments in their jurisdictions. There are benefits and challenges associated with each approach to open banking, when balancing bank safety and soundness, encouraging innovation, and consumer protection.
- Data privacy laws can provide a foundation for an open banking framework. Many jurisdictions that have adopted open banking frameworks also updated or plan to update their data protection and/or privacy laws.
- Multi-disciplinary features of open banking may require greater regulatory coordination. Within each jurisdiction, multiple authorities can have a role in addressing issues related to banks’ sharing of customer-permissioned data with third parties owing to the multi-disciplinary aspects of open banking.
Open banking comes with not only benefits but also various challenges for banks, such as risks to the business models and reputation and issues regarding data, cyber security, and third-party risk management. Therefore, banks and bank supervisors would need to pay more attention to the challenges that accompany the increased sharing of customer-permissioned data and growing connectivity of various entities involved in the provision of financial services. The report identifies the following key challenges for banks and supervisors:
- Challenges of adapting to the potential changes in business models
- Challenges of ensuring data and cyber-security in an open banking framework
- Time and cost to build and maintain APIs and the lack of commonly accepted API standards
- Oversight of third parties can be limited, especially in cases where banks have no contractual relationship with the third party, or where the third party has no regulatory authorization
- Assigning liability in the event of financial loss, or in the event of erroneous sharing or loss of sensitive data, which is more complex with open banking, as more parties are involved
- Increase in reputational risk, even in jurisdictions where there are established liability rules
Keywords: International, Banking, Open Banking, API, Operational Risk, Governance, Fintech, Cyber Risk, BCBS
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