A new framework for Open Banking

The proposal is to set up an Interim Entity which will be in place until the final Future Entity is established.  It is expected that the Interim Entity would operate for 18 months or so while the legislative framework is enacted.

It would be created under the Data Protection and Digital Information Bill (DPDI Bill) when enacted. That legislation creates a framework for all types of Open Data programmes to be set up (not just ones relating to financial services). Under this framework it is expected that HMT will mandate the establishment of the Future Entity, which is also likely to become regulated by the FCA as well as possibly by the PSR as an operator or service provider to a designated payment system.

The Future Entity will have a Board which will be selected by an Appointments Committee and non-executive Directors. There is concern from both third party providers (TPPs) and the banking industry that there should be fair representation of views and measured and appropriate governance arrangements around decision making. There will be ad hoc advisory groups to the entity. These aspects will be crucial in restoring confidence in the industry in any new entity, although there is a risk that the Future Entity may not operate differently to the existing arrangements.

It will take over all aspects of the maintenance, delivery and development of the UK's Open Banking infrastructure, including compliance. It will also take over Directory services, although there will also be an opportunity to test whether a different commercial model for those could be more effective. The intention is also that it would potentially take on responsibility for the wider Open Finance agenda.

There is an acceptance that the current model that requires only the biggest banks to fund the infrastructure is not fair. The absence of a commercial model with appropriate drivers and incentives has been identified as a barrier to the wider adoption and expansion of Open Banking solutions. The Future Entity will establish an approach that enables the costs to be paid by wider participants, including TPPs. It suggests a tiered costs approach to recover the operating fixed costs, but with a participant cost for those developing new services, such as premium APIs. Banks with the highest number of accounts are likely still to pay the most.

Until the legislation is made that can establish the Future Entity, it is proposed that the industry should establish an Interim Entity, which should be a subsidiary of Open Banking Limited. It should have a new Board. The fundamental design of the Interim Entity mirrors the approach to the Final Entity, although the Future Entity would be established as a new entity, not as a subsidiary of OBL. It would put in place a service arrangement with OBL for the infrastructure provision. There will be an Appointments Committee for the appointment of the Interim Entity Board and JROC will have a silent watching brief at Board meetings.

In effect, JROC is challenging the industry to agree an appropriate approach.  “Lessons will be learned” from the manner in which the industry agree and operate the Interim Entity.

The legal infrastructure will be needed for a two staged process to transfer the existing Open Banking infrastructure. The design of the Interim Entity will need to have in mind the ultimate transfer of its functions and the infrastructure sitting in OBL to a new Future Entity.