The Financial Conduct Authority (FCA) published the long-awaited feedback statement on its Open Finance call for input last Friday. If I were asked to summarise it in one sentence, it would be: "Open Finance is a great idea, but getting it right will take time and won't be easy".
First, almost everybody agreed that while commercial incentives are essential for Open Finance to succeed, a legislative and regulatory framework mandating and overseeing data sharing will be required for Open Finance to develop fully. The legislative and regulatory framework will need to address the potential risks as well.
Data ethics issues are at the top of the list. The phrase 'informed consumer consent' is now a common refrain in any conversation about data sharing. Yet, ensuring that consent is informed and that consumers understand both the benefits and risks of sharing their data is a lot more complicated. Some of the main risks highlighted by the feedback statement are unfair discrimination, financial exclusion, and low Artificial Intelligence transparency/explainability. There is also the potential for disparities in the distribution of benefits and risks from Open Finance between different segments of society. For example, lower income consumers who participate in Open Finance may experience both a loss in privacy and increased exclusion from financial and other services (e.g. housing).
Several other essential components will need to be put in place if Open Finance is to flourish. These include an implementation entity, transparent funding and liability models, common APIs and user experience standards, and a digital identity framework.
The FCA will continue to progress Open Finance, as the recent Kalifa Review recommended. It will work closely with the Department for Business, Energy and Industrial Strategy on its Smart Data initiative and HM Treasury to determine the next steps, including the timing and design of any primary or secondary legislation.
But the FCA also confirmed that it would not pursue a "Big Bang" approach to Open Finance, favouring a phased implementation - likely starting from use cases with the best cost/benefits balance. This also recognises that implementing Open Finance will impose significant demands on firms, potentially at a time when many are still reeling from the challenges of COVID-19. Heeding the lessons of Open Banking about implementation costs and consumer engagement, this seems the right approach.