Open banking continues to grow and so do regulatory frameworks that aim at fostering its use.
In countries like the U.K. or Europe, this process is regulatory driven and regulators are likely to bring new developments in the second half of 2022. In the U.S., open banking has been mostly led 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 could be introduced after the summer recess.
United States
The U.S. doesn´t have a specific federal law mandating open banking solutions, but the Consumer Financial Protection Bureau (CFPB) may soon change that. CFPB Director Rohit Chopra has long advocated for new rules that facilitate consumers sharing their financial data with multiple providers.
Since 2021, the CFPB has been working on designing 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 U.S. Yet, the project has suffered some delays, among other things, because the agency is grappling with how to handle consumer privacy and data protection issues, according to sources with knowledge on the matter.
Read More: CFPB Faces Fraud, Privacy Concerns in Open Banking Rules
However, last June, the CFPB announced its Spring Regulatory Agenda and it included a draft rulemaking under section 1033, suggesting that the first rule on open banking could be ready before Spring 2023.
The next step in the CFPB’s rulemaking process is a small business panel review. The CFPB will conduct the panel review in November according to an agency’s schedule outlined in the rulemaking agenda.
The Small Business Regulatory Enforcement Fairness Act requires the CFPB to seek feedback from a panel of small businesses about 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. Thus, the timeline may be tight for a new rule by the end of the year, pushing back any proposal to early 2023.
Read More: CFPB Takes First Steps for Open Banking, Big Tech Scrutiny
European Union
Open banking in Europe is regulated by the second payment service directive (PSD2). Adopted in 2015, the law established basic data-sharing rules, but EU regulators are planning to review the text to reflect on the technological advances that have occurred in the last few years.
With this objective in mind, the European Commission in May launched a consultation to gather information from stakeholders about the effectiveness of the PSD2 and what areas would benefit from a revision. The consultation will close on Aug. 5 and even though the results are not binding, the input would help the regulator to design the new PSD3. Some areas of interest for the commission, according to the consultation, are strong customer authentication rules and reducing fraud. Interestingly, the European Banking Authority asked the commission to explore the possibility of establishing standard application programming interfaces (API) to facilitate the adoption of open banking and open finance.
There is no statutory timeline for a legislative proposal, but some EU commissioners have suggested that the first draft of the PSD3 could be ready before the end of 2022.
The commission also launched a consultation about open finance, which could take the data-sharing principles beyond bank accounts and extend them to other financial products like pension, wealth management and insurance. However, a rule on this space is not likely in 2022.
Read More: EU Regulator Launches PSD3, Open Finance Consultations
Read More: PSD3 Set to Mandate API Standardization
United Kingdom
The U.K. is, arguably, the country with the most comprehensive open banking regulatory framework. The term “open banking” was coined in the U.K. when the Competition and Markets Authority mandated the largest banks in the country to share their customers’ data with other providers in 2016.
The U.K. is in the middle of a regulatory and institutional transformation that the government expects 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 in charge of promoting open banking in the country. The regulators expect this entity to be fully operational at the beginning of 2023. The PSR is also supervising the design and implementation of a new payment architecture that will also foster open banking by establishing common APIs, although this new infrastructure will still need a few years to be fully implemented.
Read more: UK Seeks Guidance on New Open Banking Roadmap, Regulator
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