The Great Convergence- contd..

Seizing the upside of disruption – what you need to know as the US moves forward on open banking

Disruption of the banking sector has gathered pace in recent years and more and more banks are starting to lay out a clear, strategic vision of how to leave behind legacy operating models. In their place, banks need to move towards digitally advanced products and customer engagement practices – the kind that seamlessly integrate with people’s connected lives – and that’s where open banking comes into play. There’s no doubt about it: open banking is poised to transform the financial services industry and in many parts of the world, it already has. Here in Canada, we’re positioned to be a real leader in promoting consumer choice and privacy, while establishing a competitive marketplace through open banking. But with the recent news from across the boarder around the proposed rule from The Consumer Financial Protection Bureau (CFPB), it looks like our US counterparts are also moving the dial on open banking and boosting competition.

Keeping pace with innovation and competition

• Under the proposed Personal Financial Data Rights rule, subjects would have the power to share data about their transactions and use of checking and prepaid accounts, credit cards and digital wallets. These are currently the only products that are within scope of this rule, but the CFPB plans to broaden the rule’s coverage in future rulemaking, to potentially include aspects such as data relating to mortgages and other loans.
• This proposed rule is intended to increase competition and help organizations provide a wide range of products and services, e.g., cash flow-based underwriting that stands to improve pricing and access across credit markets. When these organizations offer a desired product or service, people will be able to switch providers more easily and they’ll be able to conveniently manage accounts from multiple providers.
• Financial institutions must make this data available through a readily usable electronic form that is secure and reliable. Other financial institutions and third parties can request for this data on behalf of the consumer with?no associated costs or charges. This also proposes to eliminate screen scraping, an unsafe practice that poses a risk for customers and banks alike.

How the CFPB maps out transformation

These sorts of ideas don’t happen overnight and to develop the right roadmap to transformation, from an early stage the CFPB spends countless hours conducting research, while collecting public input through field hearings, consumer and industry roundtables, advisory bodies and small business review panels. Once the playbook is developed, proposed rules are published publicly to give industry, consumers and other external stakeholders an opportunity to comment on the potential impact of the proposed rule. Once a regulation is in place, the CFPB then provides support and resources to help stakeholders understand and comply with the rule – this includes giving recognition to industry standard-setting organizations who can help ensure that market players follow this rule. At the same time, required compliance timelines can often shift depending on the asset size and type of financial institutions.

Anticipated timelines:

• Comments/public input is due by December 29, 2023.
• CFPB aims to finalize the rule and be in effect Fall 2024, after reviewing and making amendments on the proposal from the comments received?.
• In October 2022, the CFPB put out an Advanced Notice of Proposed Rulemaking for the Required rulemaking on Personal Financial Data Rights. This Proposed Rule was this issued a year later in October 2023.
• Based on other previous rules making timelines, proposed rules usually become finalized between half a year to two years.

The Canadian Perspective:

• Canada technically had a head-start on its journey, but progress has been slower than anticipated.
• Ministry of Finance needs to take urgent action- the framework and rules are finalized quickly and there is a clear path/timelines to adoption.

With contributions from Matthew Fernandes and Irene Yeung