Open Banking convergence: New offshore frameworks reveal shared thinking on data sharing

This article was written by Scott Farrell.[1]

As Australia continues to establish its Consumer Data Right (CDR) with Open Banking as its first stage, work offshore is progressing to develop data-sharing frameworks which share some of its features and goals. Recently, both Canada and the United Kingdom have announced steps towards introducing, or expanding beyond, their Open Banking systems, and elements shared between them and Australia's CDR are already apparent. For anyone looking to engage with Australia's emerging data economy through Open Banking and the Consumer Data Right, these offshore developments are an important factor in the strategic decisions to be made. In this Alert we set out key features of the announcements in Canada and the United Kingdom, where they show a developing commonality with Australia's CDR, and discuss what this might mean.

The open banking world is growing, this Alert focuses on the countries in red.

Australia: creating the Consumer Data Right

The Australian Government has announced the creation of the Consumer Data Right, a general right for consumers to control their data, including who can have it and who can use it.  Banking is the first sector to which this is to apply (and this is what is called Open Banking in Australia) with more sectors (including energy and telecommunications sectors) to follow.  By connecting the sectors together, the CDR is to form a single customer-driven data sharing framework across the Australian economy. The implementation of the Consumer Data Right follows the recommendations of the Australian Government's Open Banking Review, which emphasised customer control, choice, convenience and confidence.

A summary of the CDR and its progress is set out in our recent Alert.  Following the Australian election, the legislation to implement the CDR is expected to be re-introduced into the Australian Parliament in the near future.

The Canadian Standing Senate Committee on Banking, Trade and Commerce has just released a report which calls on the Canadian Government to introduce an open banking framework.  The Senate Committee was authorised to examine and report on the potential benefits and challenges of open banking for Canadian financial services consumers, with a specific focus on the federal government's regulatory role.  The recommendations are consistent with those reached in the Open Banking Review in Australia, for example, by emphasising the need for customer choice, safety and competitiveness.

The Australian CDR and UK Open Banking frameworks are extensively referenced in the Canadian report and there are a number of key features in the recommendations which resonate with the Australian and UK systems, including:

• Customers can choose to participate or not
• Support by new laws, rather than voluntary engagement
• Oversight by a consumer regulatory agency
• Principles-based framework developed with industry engagement
• Integration of the framework with financial sector and privacy legislation
• Use of technology-agnostic API standards
• Data sharing permitted only with accredited recipients.

The Canadian recommendations were supported by a finding that many Canadians are already sharing their personal financial data with others, and that Open Banking through an API structure was needed to deliver greater safety to those choosing to share.  There were also findings as to how Open Banking could increase competition in the financial sector and deliver benefits to consumers such as "increased service levels, greater customer choice, lower fees and more attractive pricing".  These are also consistent with Australian findings.

Also like the CDR in Australia (but unlike Open Banking in the UK) the focus of the Canadian report was on data sharing, rather than payments initiation, because of the need to consider payments industry modernisation in Canada in a broader context.  The Canadian Senate found that Open Banking could promote growth and innovation in the fintech sector and that "If Canada misses this opportunity by failing to create a regulatory environment conducive to open banking, Canada risks falling behind."  Accordingly, it was a key recommendation that the Open Banking framework be implemented "decisively and with urgency".

There is another report on open banking forthcoming in Canada, which is from an Advisory Committee on Open Banking appointed by Department of Finance Canada.

The United Kingdom Government has just commenced a review  on "Smart Data", which is focussing on how data portability can be used to improve the consumer experience.  This would extend beyond Open Banking similar to Australia's Consumer Data Right.  As with Australia (and Canada) the themes of customer control, safety and benefit appear at the core of the review.

Consistently with the approach in Australia and Canada, the UK Government believes that safe, secure, consumer-driven data sharing can promote competition, lower prices and raise service quality, with the result of boosting productivity and innovation.

Key features of the UK proposals resonate with the Australian CDR, including:

• It is customer-driven, and includes small business customers
• It is to be applied first in energy and communications sector
• It requires recipients to be accredited, and accreditation is cross-sector
• API mechanisms are to be used to share data
• Explicit consumer consent for data use is required
• It is intended to create an innovative data sector

The UK review is requesting comments on key questions relating to smart data, including other sectors to which it should apply.  The consultation closes on 6 August 2019.

The UK review makes a number of references to Open Banking in the UK which, unlike Open Banking and the CDR in Australia, does not appear to be connected to Smart Data.  Interestingly, both Smart Data and UK Open Banking are referred to in a very substantial and recent piece of work conducted by the Bank of England on the Future of Finance, released just after the Smart Data consultation.  In reflecting on Open Banking in the UK, the Bank of England report notes concerns with the legal liability model used and the lack of reciprocity in the data sharing (the Australian CDR differs from UK Open Banking in each of these two areas), and suggests that there should be a review in the UK of the lessons which could be learned from this. 

International thinking on Open Banking and customer-driven data sharing is developing fast.  For example, in its recent report into the opportunities and risks of "Big tech in finance", the Bank of International Settlements advocated the benefits of data sharing in lower switching costs for customers, generally fostering competition and financial inclusion.  It found that "The issue, therefore, is how to promote data sharing" and specifically noted the impact of the Open Banking frameworks in Australia, United Kingdom, the European Union and Mexico.

The recent reports in Canada and the United Kingdom show how the data-sharing frameworks are moving quickly, and urgently.  Importantly, there is more and more in common in the thinking behind these new frameworks, and those being implemented in Australia, which is revealing some convergence in the policy positions being taken. 

For those who have customers who will soon be able to ask for their data to be shared with others, or those who develop new services for those customers, or those customers themselves, this is a significant development.  This is not only at an operational level, where consistency enables efficiency for cross-border offerings.  It is an important step towards establishing an efficient and safe global data economy.  Consistency of principles and standards have been the foundation of the resilience of the international financial system.  These first, small, steps in cross-border data sharing frameworks show glimpses of how a safe and efficient international data system could emerge.

King & Wood Mallesons is an acknowledged contributor in the reports of each of the Canadian Senate and the Bank of England that are referred to in this Alert.