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The Financial Services Consumer Panel (FSCP) has offered its feedback to the UK's open banking proposals, emphasising concerns about potential harm to consumers, particularly vulnerable individuals, if not managed responsibly.
The FSCP has published its response to the Joint Regulatory Oversight Committee’s (JROC) proposals for the future design of open banking in the UK.
The FSCP is an independent statutory body in the UK, representing consumers' interests in financial services regulation. It advises the Financial Conduct Authority (FCA) and other regulatory bodies, providing feedback on policies and practices to ensure consumer protection.
In its response the panel, which includes former regulators and private sector executives, expressed concern “that there is a high risk potential for consumer harm — particularly for those in vulnerable circumstances — if open banking is not designed, delivered and managed in an inclusive and responsible way”.
The FSCP has identified several key risks associated with the JROC’s current proposals, warning that there is a high risk that lenders might exploit open banking data to enforce aggressive or inconsiderate repayment methods, which could disproportionately affect vulnerable consumers.
Additionally, the panel warns that firms might misuse detailed insights into consumer behaviour patterns to market unsuitable financial products, potentially leading to financial distress among consumers.
Significant harm could also result if firms fail to protect consumer data securely, leaving it vulnerable to criminal activities, according to the FSCP.
In light of these risks, the FSCP has made several recommendations to enhance consumer protection within the open banking framework.
Consumer protection should take precedence over competitive dynamics, the panel says, to ensure that consumer interests are safeguarded against potential exploitation.
The FSCP has also called for the inclusion of consumer stakeholder representation in decision-making processes to ensure that the needs and concerns of consumers are adequately addressed.
There is a need for clear definitions of the scope and remit of the FCA and other respective regulators, the FSCP says. This would enable these bodies to intervene effectively and implement remedial actions when necessary.
The FSCP has also proposed a levy funding system, which it says would ensure that firms contribute fairly to the costs of regulation and consumer protection measures, promoting a more sustainable and accountable framework for open banking.
JROC, which is made up of representatives from the FCA, the Payment Systems Regulator, the Competition and Markets Authority and HM Treasury, published proposals for the design of the Future Entity for UK open banking in April.
Its consultation on the issue closed on May 20.
