Fintech companies wishing to use Open Banking APIs should consider the regulatory challenges they face prior to building out solutions.  

This article provides a UK perspective on how Fintech companies can address the challenges in order to utilise Open Banking APIs.

Open Banking In The UK

The Competition and Markets Authority (CMA) is championing Open Banking in the UK. It aims to improve competitiveness in the market place, put customers in control of their banking data and align the UK with European PSD2 regulation.

From January 2018, it has mandated that 9 UK banks (Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, RBS Group, Santander), collectively known as the CMA9, provide third party access to customer statement data and allow payments initiation. Customers must have provided prior consent for the third party to access data and services.

Implementing Open Banking

The Open Banking Implementation Entity (OBIE) has been established to drive the necessary changes and industry coordination for Open Banking in the UK. 

It is working with the CMA9 banks and other industry players to develop standards for security, read/write APIs and will maintain a directory of entities that have been approved to access the APIs.

The directory is for Account Servicing Payment Service Providers (ASPSPs i.e banks), Third Party Providers (TPPs) in the form of Account Information Service Providers (AISPs), and Payment Initiation Service Providers (PISPs).

Enrolment for the UK Open Banking Directory is now open.

Open Banking Regulation

In order to complete enrolment for the Open Banking Directory a Participant must be authorised or registered by a Competent Authority to: 

• Perform the relevant services under the Payment Services Regulations or Electronic Money Regulations 
• Perform the relevant services under the Financial Services and Markets Act 
• Hold a passport into the UK for the relevant services under the Payment Services Regulations or Electronic Money Regulations
• Hold the relevant passport under the Capital Requirements Regulation
• Act as an Agent for a firm which holds the relevant services under the Payment Services Regulations or Electronic Money Regulations 

In the UK, the Competent Authorities are:

• Prudential Regulation Authority (PRA) regulates banks, building societies, credit unions, insurers and major investment firms.
• Financial Conduct Authority (FCA) is the regulator for 56,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms. 

In the main, TPPs will require to be approved by the FCA following a process that can take between 6-12 months to fully complete. 

For innovative Fintech companies, the FCA offers tailored support that can make it easier to navigate the required regulation and can provide access to the regulatory sandbox to road test ideas.

Summary

Open Banking will open up a myriad of opportunities for new and existing Financial Service players. The UK is leading the way in Europe by unifying the countries banks and establishing an implementation body to drive the standards and changes required.

Fintech companies are advised to play close attention to the work of the CMA and OBIE. This will ensure they can meet regulatory obligations prior to investing time and money building solutions that depend on Open Banking APIs.

Open Banking Developers Europe Linked In Group

To help unite the Open Banking Developers of Europe and connect them with fintechs, regulators, banks and suppliers, a LinkedIn group has been launched. It would be great if you could join in and contribute to the knowledge sharing and discussions. Click here to join.