HKMA published a circular to clarify its expectations on the consumer protection measures of authorized institutions in respect of the Open Application Programming Interface (Open API) framework. The Annex to the circular lists sound consumer protection practices for Open API Phase II and beyond. To strike a balance between innovation and consumer protection, HKMA emphasizes that authorized institutions should adopt a risk-based approach and implement the consumer protection measures that are commensurate with the risks involved.
The circular also clarifies the requirements about engagement of intermediaries by the authorized institutions, as the use of third-party service providers under Open API Framework may constitute the use of intermediaries by authorized institutions. For the avoidance of doubt, Simple Redirection Model is not considered as use of intermediaries by authorized institutions and the authorized institutions should still comply with the HKMA-issued applicable requirements for engagement of intermediaries. Authorized institutions should establish clear liability and settlement arrangement with the partnering third-party service providers for compensating customers’ loss arising from unauthorized transactions, with clear upfront communication to customers. They should also and adhere to the principle that a bank customer should not be responsible for any direct loss suffered by him/her as a result of unauthorized transactions conducted through his/her account attributable to the services offered by the third-party service providers using the Open API of authorized institutions, unless the customer acts fraudulently or with gross negligence.
Authorized institutions are expected to put in place consumer protection measures when implementing the Open API framework. These institutions are expected to uphold consumer protection principles set out in the Code of Banking Practice and comply with other applicable regulatory requirements; this is expected regardless of the underlying technology adopted for the banking products and services and regardless of whether the authorized institutions provide the products and services themselves or in partnership with the third-party service providers.
Keywords: Asia Pacific, Hong Kong, Banking, Open API Framework, Fintech, Open API Phase II, HKMA
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