Open Banking and the Regulatory Landscape: A Quick Overview

This is the first in a series of four articles about Open Banking and the Regulatory Landscape

By Ibtihaj Hassan.

Amidst the global wave of digitalisation, a revolutionary financial concept known as Open Banking is emerging as a transformative force. Open Banking signifies a departure from traditional financial models, embracing a seamlessly integrated and customer-centric approach to banking that harnesses the power of technology and secure data sharing.

Essentially, Open Banking allows authorized third party providers to access customers' financial data (with their explicit consent of course) and securely use it to enhance the customer experience by providing easier access to information, payments, lending and other cases. This marks a move away from a single line of communication with the customers bank to using application programming interfaces (APIs) to share information with other third party providers such as Fintechs.

The legal and regulatory landscape of a region plays a key role towards the enablement and success of Open Banking. Europe, being the leader in this regulatory revolution is a relevant region to begin with. Regulators in Europe felt it was necessary to ensure healthy competition between banks and enhance customer experience. Groundbreaking regulations such as the PSD2 (Payment Services Directive 2), entering into force in 2018, played a key role in defining the template guidelines for data sharing. Other regions followed suit to develop the regulatory structures to enable open financial solutions such as Consumer Data Right Laws in Australia, Rules shared by the Hong Kong Monetary Authority to boost fintechs and Open Banking, Brazil introducing legislation in 2021 and others across the globe.

However, mere introduction of regulations does not complete the story, many hurdles have been coming up since. In order to ensure that the privacy and security in data is maintained, a burden is inevitably placed on the consumers which slows down adoption. Earlier this year, during a speech to the European Parliament on Open Banking, Commissioner McGuinness recognised that less than 5% of consumers in Europe were using Open Banking by 2021 and this number was slower than expected and highlighted possible revisions to the regulations to address the issues and improve adoption. Banks often comply with the regulations as a checkbox and do not necessarily see a driving commercial case.

It is therefore hard to achieve a balance through regulations to protect consumers and also offer useful business opportunities to banks and consumers. However, new legislations are being introduced in emerging markets as well as developed ones for Open Banking and these new developments will continue to show how the regulators learn from the global landscape and ensure that consumers, SMEs, and banks alike can benefit from them while ensuring privacy and security of data.

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About the Author Ibtihaj Hassan is a professional working at the intersection of law and technology. With a background in business and law as well as a keen interest in the fintech and legaltech sectors, he has been working in partnerships, strategy, legal/regulatory affairs and operations within tech startups. He also works on consultancy projects with law firms. Ibtihaj is passionately committed to using tech-driven innovation to enhance efficiency and increasing access within the financial and legal sectors.

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