Long reads

Open finance and smart data: Where are we heading?

Luke Scanlon

Luke Scanlon

Head of Fintech Propositions, Pinsent Masons

Two significant steps have been taken recently which are poised to move forward the discussion on the future of open finance and smart data in the financial services context. Those steps are the potential for finalisation of the Data Protection and Digital Information and (DPDI Bill) and the Joint Regulatory Oversight Committee (JROC) proposals for the design of the Future Entity for UK open banking. JROC consists of consisting of Financial Conduct Authority, Payment Systems Regulator, HM Treasury and the Competition and Markets Authority.

Below we consider these two developments and what they may mean for the future of smart data, open finance and financial services.

Smart data schemes and the DPDI Bill

The DPDI Bill proposes to make significant changes to UK data protection laws and move away in some respects from the EU standard – the General Data Protection Regulation. But it is not the data protection aspects of this Bill which are significant for the future of smart data and open finance but its perhaps less discussed digital information components.

It had seemed likely that the Bill would soon be finalised, having reached the late stages of passage through Parliament. The surprise call for an election however, has now meant that the Bill has fallen and will not be completed before Parliament is dissolved before the election. This will have an impact on how quickly the UK can move forward with plans for enabling open finance and smart data in the financial services context.

The Bill sets out the mechanism through which smart data schemes can be leveraged to build on leading position the UK has taken in developing an open banking ecosystem. It provides for data portability and secure customer data sharing upon the request of customers and gives government powers to mandate the participation of data holding organisations.   

The combination of the UK's implementation of the Payment Services Directive 2 and the Retail Banking Market Investigation Order 2017 paved the way for secure sharing of UK transaction data between banks and other account holding institutions and third party regulated providers. These developments were largely only limited to payment and current account data respectively. Unlike these limited schemes, the smart data proposals as set out in the Bill are more wide-ranging in their effect. They take the same concepts and allow for secure sharing to be applied much more broadly within financial services and also to data held by organisations that operate outside of the sector. There is clear opportunity for providers operating in energy, telecommunications, retail and other sectors to consider the value that may be extracted from the customer data they hold when combined with that of financial institutions and other regulated financial services providers.

Existing open banking developments may also see further opportunities for expansion through smart data schemes. There has, for example, been a lot of discussion around the opportunities for new open finance services to be provided where the monthly payments customers make vary. Energy bills are a prime example, as they can change month to month. The combination of integrating a variable recurring payment solution with access to a customer's energy data is one that many would see as attractive.

It remains to be seen how much of a priority finalising the DPDI will be after the election. It seems certain though that the opportunities for open finance innovation will be enhanced by a regulatory framework that enables the streamlining of open finance and smart data initiatives.

JROC proposals for a future entity

Unlike all EU countries, the UK has taken a hands-on approach to open banking and established and mandated the creation of a body to deliver it – the Open Banking Implementation Entity (OBIE). While that entity has taken forward activity in more than one area, it is its development of data and technology standards that have been enabled the UK open banking market to move forward tangibly that has been the most significant. The development of these standards set a blueprint for activity which may be undertaken by participants in smart data schemes in the future.  

With this in mind, the UK regulators through JROC have now proposed to evolve the OBIE so that it will be effective in delivering on various open finance and other smart data initiatives. A new body that is funded by a greater proportion of the relevant market seems to be a step in the right direction to enable this activity.

Many lessons will be learned from the journey that OBIE has taken in terms of enabling the availability and performance of effective data and technology standards for secure data sharing. Information flows between holders of data and third parties making use of that data will also benefit from the years of work already undertaken.

The move forward with the JROC proposals and the DPDI Bill will see the UK take more definite steps towards enabling businesses and customers to make the most of the data they hold and the value that can be derived from combining data in ways that lead to better insights and access to future opportunities that otherwise could not be brought into view.

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