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The technical solutions to achieve open banking in the UK were a success, but other issues such as governance were not factored into the equation by the UK’s Competition and Markets Authority (CMA), an independent review has found.
The Competition and Markets Authority (CMA) has published the findings and recommendations of a review by Kirstin Baker, one of its independent non-executive directors.
As part of the review, the former Treasury official and Competition Appeal Tribunal lay member has identified lessons to be learned from open banking for the CMA’s approach to designing, implementing and monitoring remedies in its market investigations.
In her conclusions, Baker has acknowledged that the CMA did not fully anticipate the scale and complexity of its remedy and it failed to foresee or manage some of the key risks inherent in the delivery of the project, in particular in relation to governance at the Open Banking Implementation Entity (OBIE) and relationships with key stakeholders.
She also took issue with the CMA’s approach to funding arrangements, arguing that there was a lack of clarity from the outset as to the role of the CMA9, the UK’s nine largest banks and building societies, which fund OBIE. This was linked to the lack of clarity over roles and responsibilities in relation to the OBIE.
“The adoption of revisions to the Roadmap in 2017 and 2018 should have provided the CMA with an opportunity to review and if needed clarify the processes around the funding arrangements,” Baker suggested.
The CMA could have considered, for example, the flow of information in relation to OBIE’s finances between the OBIE, the CMA9 and the CMA, particularly given that the Order and Agreed Arrangements lacked detail or clarity over such matters, and bearing in mind that the longer timescale for the project would have been apparent by 2018 if not earlier.
According to Baker, the CMA should also have reviewed the overall costs to the industry given the “significant increase” from initial estimates and should have sought to understand the reasons for this increase notwithstanding the context of wider second Payment Services Directive (PSD2) implementation.
What Now?
Overall, Baker has set out seven recommendations for the CMA when carrying out market studies and investigations.
These are:
- Building more effective Board oversight and risk management of the end-to-end strategy for complex remedies.
- Setting out processes and governance for the CMA Board and Executive oversight of the delivery and implementation of remedies.
- Considering questions relating to implementation at the remedies design phase.
- Ensuring key factors are considered where a remedy establishes a new entity or large and enduring CMA function.
- Including gateways in the remedy delivery and implementation process.
- Implementing effective and agile internal governance and stakeholder engagement in remedy delivery and implementation.
- Conducting an evaluation case study of complex market investigation remedies.
Open banking, at times, has been a struggle and far from a success story. One source familiar with the initiative went as far as calling it a “s***show”, when asked to describe it.
Yet the UK remains a leader among European countries in terms of open banking and Baker took a more optimistic approach.
“The Open Banking remedies are some of the most complex ever implemented by the CMA and have been important in opening up competition in retail banking and supporting the growth of UK fintech,” she said in a statement.
Baker continued to point out that many stakeholders who were spoken to for the review underlined that the CMA should continue “to be bold and innovative in using its market powers to benefit consumers.”
However, the Board recognised that there were lessons for the CMA to learn from the governance failings at the Open Banking Implementation Entity (OBIE) identified by Alison White.
White’s investigation concluded that the then trustee of the OBIE had not ensured that the organisation was properly managed in accordance with the Retail Banking Market Investigation Order 2017.
It also found that a lack of appropriate corporate governance had contributed directly to those organisational failings.
“My review has found that the CMA did not match the ambition of the remedy with an appropriate level of oversight or strategic risk management,” said Baker. “The CMA seeks to be a learning organisation and I am pleased that staff at all levels engaged constructively with this review and that changes have already been made or are in progress to address the issues identified.”
The CMA has confirmed that it will publish a further update next year on its progress in implementing this work programme on remedies.
David Stewart, CMA executive director of markets and mergers, welcomed Baker’s analysis.
“However good our analysis and proposed remedies, we will only achieve better outcomes for consumers, businesses and the economy if we follow through on our decisions with effective implementation, monitoring and enforcement,” he said.
This review will help shape our work programme on remedies, he added. “I am determined that we will deliver on it and report on it publicly.”
