The UK Competition and Markets Authority (CMA) will replace the Open Banking Implementation Entity (OBIE) with a "future entity" as the latter completes its mission to implement open banking standards.
The CMA has released a number of recommendations on how a future entity that will replace the OBIE should be designed. The new entity will be responsible for the future oversight and governance of open banking in the UK.
These recommendations include that the future entity should have independent and accountable leadership, and be adequately resourced to carry out its functions.
These points are aimed at addressing key concerns following a scandal at OBIE last autumn when the CMA found that OBIE leadership failed to manage conflicts of interest and created “a toxic workplace culture”, which included alleged bullying and harassment.
OBIE has also been criticised for allegedly adopting proposals from banking and payments industry lobby group UK Finance that others argued lacked sustainability.
One area of concern is that the current funding model can create an imbalance of power within the organisation.
For example, the CMA now acknowledges that “there is a risk that if the CMA9 [the nine largest UK retail banks] are the main committed funders of the future entity, … they may assume a position of greater influence over the future entity”.
In the short term, however, as the entity needs access to funds to fulfil its purpose, the CMA recommends “that the current funding arrangements for OBIE should remain in place for the future entity in its discharge of functions beyond the scope of the Order until a long-term funding model has been agreed by the Board of the future entity and the Joint Regulatory Oversight Committee”.
These recommendations are addressed to a new Joint Regulatory Oversight Committee, which will make further recommendations for the design of the future entity by the end of 2022.
The committee will comprise representatives of the CMA, the Financial Conduct Authority (FCA), the Payment Systems Regulator (PSR) and HM Treasury, and is expected to engage closely with industry throughout this exercise.
OBIE is expected to conclude the implementation of the open banking roadmap later this year, therefore fulfilling its purpose.
Once the roadmap is completed and the transition of OBIE’s functions to its successor body is ready, the future entity will take on responsibility for further developing open banking.
This interim period will end when the long-term regulatory framework is in place.
According to the CMA, the UK has been a global leader in open banking and, as of January 2022, there were more than 5m customers using open banking services. TrueLayer’s 2021 report estimated that by September 2023, 60 percent of the UK population will be using open banking payments.
“While this is hopefully another step towards a fully integrated open finance landscape, progress in open banking remains too slow,” said James Lynn, co-founder of Currensea, an open banking-powered, money-saving debit card linked to existing bank accounts.
“People are craving innovative solutions to help them cope with the cost of living crisis — UK fintechs are world-leading yet the industry is at risk of not fulfilling its potential,” he added.
Although it is estimated that the usage of open banking will increase from 10 percent of the population to 60 percent, or around 40m users, by next September, this “seems an unreachable goal without real support from government and regulators to increase awareness and adoption of open banking”, according to Lynn.
“The concern is that the industry is missing a huge opportunity to transform the public’s attitudes and relationship with finance, and therefore helping them to make more of their money.”