On 17 April 2023, the Joint Regulatory Oversight Committee (JROC) published a report setting out its vision for the future of open banking as well as its recommendations and proposed actions for delivering the next phase of open banking in the UK. The JROC was established in March 2022 to design and oversee the next phase for open banking. It comprises the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and HM Treasury and the Competition and Markets Authority (CMA) as members.
The publication of these recommendations and the JROC’s roadmap is welcome as it provides open banking stakeholders with further clarity as to the direction of the regulatory landscape over the next two years.
In a number of key areas, however, further work will be required to put detail onto the JROC’s proposals.
Whilst the JROC recognises the role that premium APIs will have in increasing competition and innovation, the report gives little detail about the commercial framework that will underpin this, including universal API standards and how consumers will be protected in case something goes wrong. The report does say that the FCA and the PSR intend to publish a joint discussion paper in Q2 2023 which will propose high-level principles for developing a premium API commercial model and, if needed, the FCA and PSR will then consult on the adoption of a commercial framework for premium APIs.
The report stresses the importance of keeping consumers safe and protected when using open banking products and services, and making sure that they have an effective mechanism for redress if something goes wrong. But the JROC acknowledges that views amongst stakeholder groups differ substantially on the appropriate level of protection, how to implement this, and who should be responsible and there is little substantive detail in the report about what a future dispute resolution process will look like. The JROC has asked the Open Banking Implementation Entity (OBIE) (and the subsequent future entity that will replace the OBIE) to perform a gap analysis of dispute processes by the end of 2023.
The JROC acknowledges that the vision and recommendations in the report are ambitious and will take time to deliver. Whether or not the roadmap of 29 actions will be achieved on time and the success of the outcomes will depend to a large degree on how effectively relevant stakeholders (e.g. retail banks, TPPs, fintechs) collaborate and how well the OBIE/future entity are able to encourage and facilitate that collaboration.
Purpose of the report and key areas covered
The report sets out the JROC’s views and recommendation and the actions that it believes are required to successfully transition to the next phase of open banking and maintain the UK’s international leadership. A number of the report’s themes build on the Strategic Working Group report, the Trustee End of Implementation Roadmap Report as well as submissions and engagement with stakeholders.
The report covers the following key areas:
- The JROC’s vision and priorities
- Evolution and transition of the OBIE to a future entity
- Principles underpinning the government’s long-term regulatory framework for open banking
- Future roadmap
Vison and priorities
Whilst the JROC considers that open banking has made significant progress in the UK, it also believes that more can be done to deliver its full benefits – within retail banking markets in particular – and to maintain the UK’s international standing as a leader in open banking.
In the JROC’s view, for the next phase of open banking to be successful in delivering more products and services that benefit consumers and businesses, the ecosystem needs to be more economically sustainable and reliable, resilient and efficient. It believes that creating this ecosystem will require a new open banking entity that will play a central role in supporting the development of new, and improved, open banking propositions, as well as joint effort and industry collaboration and strong regulatory direction.
The JROC has identified the following three priorities to deliver its vision:
- Ecosystem – to establish a sustainable and competitive footing for the ongoing development of the open banking ecosystem.
- Payments – to unlock the potential for open banking payments, providing consumers and businesses with greater choice and better services when making payments. In the report, the JROC says that one of its ambitions is to enable open banking payments to support retail transactions as an alternative to card payments.
- Data Sharing – to adopt a model that is scalable for future data sharing propositions (including both the secure collection and sharing of data).
The report sets out the JROC’s vision for the evolution and transition of the OBIE to a future entity, to be at the heart of the transformation to an economically sustainable and scalable open banking system. This follows earlier recommendations and statements of March and December 2022 made by the CMA, HM Treasury, FCA and PSR for the design of a future entity to succeed the OBIE.
Consistent with the views of other stakeholders with whom the JROC has engaged (e.g. retail banks, providers of account information services (AISPs) and providers of payment initiation services (PISPs) (together known as Third Party Providers or TPPs), and fintechs, which together form the UK’s open banking ecosystem), the JROC is in favour of the future entity having standard-setting responsibilities, thereby positioning it to support the development of new and improved open banking propositions, improve existing and develop new standards and guidelines (amongst other things).
As highlighted by the statements of March and December 2022, subject to the CMA’s consent, the JROC expects open banking to transition from the current model, in which the OBIE is overseen by the CMA for obligations under the Retail banking Market Investigations Order 2017 (the CMA Order), through an interim state, in which a future entity will be overseen by the JROC (in respect of non-CMA Order activity) and by the CMA (in respect of CMA Order activity), prior to the establishment of a long-term regulatory framework for open banking. The interim state began in January 2023 when the CMA determined that the implementation phase of the roadmap for the nine largest retail banking providers in the UK to open up customer data for open banking, was substantially complete. The JROC expects the transition to the future entity to start later in 2023. The interim state will end once the long-term regulatory framework is in place.
The JROC has two immediate priorities relating to the future entity:
- Working with the OBIE to establish alternative arrangements for non-CMA Order activities, which the JROC expects the OBIE to undertake until such time as the future entity is in place; and
- Finalising the design of, and begin the transition to, the future entity, including its appropriate corporate structure.
The report sets out a timetable for the JROC to carry out activities relating to the establishment of the future entity, including further analysis of the options for the structure, governance, and funding of the future entity. The report contains an overview of the options currently under consideration and the further work that is necessary to enable the JROC to finalise a detailed view on the design of the future entity and the OBIE’s transition to it. The options for the OBIE/future entity currently under consideration by the JROC are:
Options under consideration
- Parent-subsidiary model, which would involve setting-up a new subsidiary, to delineate CMA Order / non-CMA Order activities
- Single entity model, with ring-fencing of CMA Order / non-CMA Order activities
- Two-entity model, which would involve setting-up a new subsidiary to progress non-CMA Order, with the OBIE retained for CMA Order activities
- Tiered membership model (e.g. based on firms’ turnover / market share)
- Pay-as-you-go model for the use of premium services (e.g. premium APIs that go beyond regulatory requirements)
- Hybrid model comprising tiered membership and pricing for premium services
- Centralised model, with the future entity as standard-setting body and provider of core functionalities and support services
- Centralised model with the future entity as standard-setting body and provider of core functionalities but support services could be serviced either by future entity or other market providers
The report states that the FCA and the PSR, with the CMA’s support, will work with open banking participants and broader stakeholders in Q2 2023 on the possible options for the design of the future entity. It notes that this will enable the JROC to finalise a detailed plan for the establishment of an economically sustainable new entity and the OBIE’s transition to it in Q3 2023. The JROC intends to publish a progress update with its refined views on the design of the future entity in Q4 2023.
Long-term regulatory framework
The report states the government’s commitment to creating a long-term regulatory framework for open banking in the UK and sets out the principles that will underpin that framework. These include:
- Role of FCA and PSR – the FCA should regulate firms in relation to the provision of open banking services, including payment initiation and data sharing requirements. The PSR should regulate the open banking services that relate to a payment system and participants in that payment system.
- Smart data scheme for open banking – the government intends to create a smart data scheme under the Data Protection and Digital Identity (DPDI) Bill, currently progressing through Parliament and introduced on 8 March. Under these powers, Secretaries of State and the Treasury will be able to mandate participation in smart data schemes via secondary legislation in the form of regulations. The government intends to use these powers to create a regulatory framework for data sharing in open banking. The government intends to set out in more detail its plans for a smart data scheme as the DPDI Bill progress through Parliament.
To deliver the JROC’s vision and priorities, the report sets out a roadmap of 29 actions that will be completed in step changes over the next two years, covering five themes:
- Levelling up availability and performance
- Mitigating the risks of financial crime
- Ensuring effective consumer protection if something goes wrong
- Improving information flows to TPPs and end users
- Promoting additional services, using non-sweeping variable recurring payments (VRP) as a pilot.
The roadmap also sets out a three-phased delivery approach:
Collectively improve understanding around the level of financial crime across the open banking ecosystem and the availability and performance of APIs across different account servicing payment service providers (ASPSPs).
Lay the groundwork for the end state by improving data sharing to prevent fraud and financial crime, supporting the development of commercial and liability frameworks and improvements in information flows to TPPs on API calls and payment messages.
New sustainable commercial model developed and piloted, and new innovative business models tested. Some of these actions may require the long-term regulatory framework (and/or other regulatory intervention).
The JROC intends to monitor progress against all actions in the roadmap regularly and will provide a first progress report in Q4 2023 to update on progress made against the priority items set out in the report. Ahead of that, the JROC will engage with stakeholders and support them in delivering actions outlined in the report. The JROC will hold a webinar to summarise its proposal in this report in May 2023.
In parallel, the JROC will provide further guidance and set out the principles for engagement on the actions under the five themes identified in the roadmap. They also intend to publish terms of reference, where applicable, for the actions that the JROC will ask the open banking ecosystem to develop proposals for.
Stakeholders should check for these updates and further publications from the JROC and may also wish to see how they may be able to engage with the JROC and the wider ecosystem on the delivery of the JROC’s proposals for the future of open banking.
For further information, you can read the full report here.
If you would like to discuss this report or any of the JROC’s recommendations, please contact one of the listed lawyers or your usual CMS contact.