Competition Authority Envisages UK Open Banking Future

November 8, 2021
The UK's Competition and Markets Authority has published a new update regarding its vision for the “future entity” to replace the Open Banking Implementation Entity.

The UK's Competition and Markets Authority (CMA) has published a new update regarding its vision for the “future entity” to replace the Open Banking Implementation Entity (OBIE).

Although open banking may still feel like a relatively new phenomenon to many in the UK and its neighbours in the EU, the first chapter is coming to an end — at least for the CMA.

Over the course of 2022, the CMA’s powers will begin to change as part of the Retail Banking Market Investigation Order 2017, as the implementation phase of open banking comes to an end.

Although the CMA is set to retain some direct regulatory powers, including regarding the ongoing maintenance of open banking and monitoring compliance, there is going to need to be an effective longer-term framework for the future.

As part of this vision, the CMA has now published a set of high-level principles that it hopes will guide these plans, including the possibility of regulatory collaboration.

Here, it envisions oversight being shared with both the UK’s Financial Conduct Authority and the Payment Systems Regulator.

The CMA wants close collaboration between regulators and the ability for regulators to set expectations and prioritise appropriate interventions when necessary, according to the update.

Addressing the Future Entity

Meanwhile, the CMA has also spoken about the need for the "future entity" to represent the various parts of the open banking ecosystem, arguing that it must sufficiently and fairly represent and take account of all relevant industry participants and end-users, including consumers and smaller business interests.

In doing so, however, this will require adequate resources to capture and represent these views effectively at all levels.

In recent months, the OBIE has got itself into hot waters with elements of the open banking industry.

In particular, there were concerns about the entity adopting proposals from banking and payments industry lobby group UK Finance.

These proposals suggested that the CMA9, the nine largest banks that are part of the open banking initiative, should be obliged to fund a future entity for three years, but after that could withdraw membership within six months.

However, Innovate Finance, the fintech trade association, warned that this model lacked sustainability.

In response, the CMA looks set on overhauling funding of any future entity.

Its update is supportive of the design and implementation of a more broadly-based and sustainable funding model, particularly in respect of so-called membership contributions.

Here, the watchdog has acknowledged that there are different funding models available. For example, this could entail securing financial contributions from third-party providers, enabling commercial revenues for Directory Services, or potentially even a sector-wide levy.

Acknowledging the scandalous report that hit the OBIE in October, which included allegations of bullying and conflict of interests forcing its chief to resign, the CMA has dedicated plenty in its update to corporate governance.

“The Future Entity must adhere to high standards of corporate governance and transparency,” the CMA says, with this including clarity on roles and responsibilities, a clear purpose, financial transparency, appropriate checks and balances and appropriate corporate governance policies.

According to the CMA, the board of the future entity must be independent and accountable, with this being reflected in the roles and composition of the board, including, for example, an independent chairperson.

In particular, consideration must be given in determining board composition to the potentially wider scope of the future entity to ensure that governance remains effective as it develops.

As for the next steps, the CMA has confirmed that it will be publishing a further update on this by the end of the year or in early 2022, stating that it is working alongside fellow regulators and government departments to flesh out its goals for the entity.

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