Last week Treasurer Scott Morrison’s media release on the proposal to introduce an open banking regime in Australia was framed around the requirement for banks to be able and willing (with customer agreement) to share product and customer data with third parties.
The timing is interesting given the disruptive rise of FinTechs and the fact there are new entities emerging across the banking value chain. Until recently banks tended to regard their data as a strategic asset (for example not sharing default data) but with positive credit now in force, this is already changing. So this is a logical next step, and should be welcomed.
From our work whit a number of FinTechs we know that access to data is one of the barriers to success, alongside concerns about data security, and identity fraud. Opening the door to data sharing may be laudable, but there are significant technical issues to work through.
If open banking arrives, it would have the potential to increase competition, and perhaps put pressure on bank product pricing, as well as differentiated servicing; but we will see. It may open the door to more automated product switching, as well as better portfolio management and cross-selling. It certainly is another dimension in the wave of digital disruption already in play, which is ultimately being facilitated by the adoption of mobile technologies and devices.
The Turnbull Government has commissioned an independent review to recommend the best approach to implement an Open Banking regime in Australia, with the report due by the end of 2017.
Greater consumer access to their own banking data and data on banking products will allow consumers to seek out products that better suit their circumstances, saving them money and allowing them to better achieve their financial goals. It will also create further opportunities for innovative business models to drive greater competition in banking and contribute to productivity growth.
The review will be ably led by Mr Scott Farrell. Mr Farrell is a Partner at King & Wood Mallesons and has more than 20 years’ experience in financial markets and financial systems law. Mr Farrell has given many years of service to the public and private sector in advising on, and guiding, regulatory and legal change in the financial sector. He has intimate knowledge of the financial technology (FinTech) sector and is a member of the Government’s FinTech Advisory Group.
Mr Farrell will be supported by a secretariat located within Treasury and will draw upon technical expertise from the private sector as required. The review will consult broadly with the banking, consumer advocacy and FinTech sectors and other interested parties in developing the report and recommendations.
The Review terms of reference have been released and an Issues Paper will shortly be made available for interested parties to provide input to the review.
Purpose of the review
The Government will introduce an open banking regime in Australia under which customers will have greater access to and control over their banking data. Open banking will require banks to share product and customer data with customers and third parties with the consent of the customer.
Data sharing will increase price transparency and enable comparison services to accurately assess how much a product would cost a consumer based on their behaviour and recommend the most appropriate products for them.
Open banking will drive competition in financial services by changing the way Australians use, and benefit from, their data. This will deliver increased consumer choice and empower bank customers to seek out banking products that better suit their circumstances.
Terms of reference
- The review will make recommendations to the Treasurer on:1.1. The most appropriate model for the operation of open banking in the Australian context clearly setting out the advantages and disadvantages of different data-sharing models.1.2. A regulatory framework under which an open banking regime would operate and the necessary instruments (such as legislation) required to support and enforce a regime.
1.3. An implementation framework (including roadmap and timeframe) and the ongoing role for the Government in implementing an open banking regime.
- The recommendations will include examination of:2.1. The scope of the banking data sets to be shared (and any existing or potential sector standards), the parties which will be required to share the data sets, and the parties to whom the data sets will be provided.2.2. Existing and potential technical data transfer mechanisms for sharing relevant data (and existing or potential sector standards) including customer consent mechanisms.
2.3. The key issues and risks such as customer usability and trust, security of data, liability, privacy safeguard requirements arising from the adoption of potential data transfer mechanisms and the enforcement of customer rights in relation to data sharing.
2.4. The costs of implementation of an open banking regime and the means by which costs may be imposed on industry including consideration of industry-funded models.
- The review will have regard to:3.1. The Productivity Commission’s final report on Data Availability and Use and any government response to that report.3.2. Best practice developments internationally and in other industry sectors.
3.3. Competition, fairness, innovation, efficiency, regulatory compliance costs and consumer protection in the financial system.
The review will consult broadly with representatives from the banking, consumer advocacy and financial technology (FinTech) sectors and other interested parties in developing the report and recommendations.
The review will report to the Treasurer by the end of 2017.