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Members of the public have asked U.S. lawmakers not to over-regulate the sharing of financial data and leave it to the financial sector to develop technical standards for open banking.
On Tuesday (September 21), lawmakers, consumer groups, and industry participants came together at a hearing organized by the federal House of Representatives’ Task Force on Financial Technology to discuss the best ways to regulate financial information sharing between traditional and novel financial firms.
Although financial institutions and fintechs have collected and shared more and more data in recent years, the U.S. still has no clear regulatory regime to govern the practice.
The Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 gives consumers the right to access data about their financial transactions and has given the Consumer Financial Protection Bureau (CFPB) the task of creating standards that promote the development and use of standardized formats for this information.
Last November, the CFPB issued an advanced notice of proposed rulemaking on the subject of consumers’ rights to access their financial information. The bureau said that it would decide on its next steps and “remain in a pre-rule stage” until next April.
In an executive order in July, President Joe Biden urged the CFPB to speed up the rulemaking process and promote competition by enabling consumers to "port" their financial data to new, innovative financial products.
The new open-banking rule is destined to affect payments processors, data aggregators, neobanks and fintechs, which at the moment need to sign bilateral agreements with financial institutions that hold consumers’ data. These agreements largely depend on the willingness of the financial institutions that hold the data to share access to it.
This places the U.S., in terms of regulation, far behind the UK, the EU, and Canada. Canada has set January 2023 as an “ambitious but achievable” deadline for the appearance of its open-banking system.
However, in contrast with Europe and the UK, the U.S. is a very complex market, according to Tom Carpenter, director of public affairs at Financial Data Exchange (FDX), when he spoke to the politicians. It has a myriad of financial regulators and more than 10,000 financial institutions in operation.
Carpenter asked the lawmakers to find a balance between the things the regulators do and the things the industry does.
FDX, a non-profit organization of 197 banks, fintechs and consumer groups, has developed a financial data-sharing API standard that has applies to 22m consumers’ accounts in the U.S. and Canada. By comparison, the Open Banking Implementation Entity (OBIE) in the UK has recently reported that more than 3m consumers are using its open banking API.
Carpenter urged the legislators to let the financial services industry develop technical specifications and standards instead of establishing regulatory technical standards.
“We typically look at open banking as a ‘how’ and a ‘what.’ The ‘what’ is really up to regulators and policymakers. It encompasses decisions and guidance about financial data rights, what constitutes derived data, and regulations concerning different entities and roles within data sharing.
“The ‘how’ is — how is this accomplished, how is this data moved from point A to point B — and that is what we think the best to be left for the industry.”
Steve Smith, co-founder and CEO of Finicity, a Mastercard company, reminded lawmakers that the financial industry is undergoing a technological shift “that is still very much in its early innings.”
“As it emerges and matures, federal policymakers will play a meaningful role in the direction and pace of this transformation by providing clarity on data protection expectations, data privacy requirements and consumer data rights,” he explained.
While supporting consumer financial data sharing, the American Bankers Association (ABA) cautioned against overly prescriptive standards. The ABA believes that such standards might undermine the progress that the industry has been made and leave consumers exposed.
The bankers’ lobbying group, which is also a member of FDX, said in a statement for the record that the CFPB should state that the Gramm-Leach-Bliley Act, which protects consumers’ financial data, does so throughout its whole lifecycle. The ABA also asked Congress to bring data aggregators under the CFPB’s direct supervision.
