The future of open banking: JROC recommendations

Open Banking was initially launched in 2017 with the introduction of the Open Banking Implementation Entity (OBIE); the OBIE is overseen by the Competition and Markets Authority (the CMA), in respect of obligations under the CMA’s Retail Banking Market Investigation Order (“Order”), which was established to bring competition into the banking sector.  This article will summarise what to expect from the next phase.

What are the recommendations for the next phase?

With currently seven million active users of Open Banking in the UK, the JROC (which is comprised of the Financial Conduct Authority, the Payment Systems Regulator, HM Treasury and the CMA) is focussed on three key priorities for the next phase of Open Banking: building a sustainable and competitive eco-system, unlocking the potential of Open Banking payments, and developing a scalable data-sharing model. 

The JROC’s commitments and priorities will be delivered through a strategic roadmap, comprised of 29 actions to be completed in steps over the next two years. The actions relate to the following five themes:

• Levelling up availability and performance
• Mitigating the risks of financial crime
• Ensuring effective consumer protection if something goes wrong
• Improving information flows to third party providers and end users
• Promoting additional services, non-sweeping variable recurring payments as pilot

It will be interesting to see the extent to which the industry considers the viability of a consumer protection regime in a buyer/payment account holder-merchant payment flow that operates in a similar way to the chargeback regime for card payments or whether other innovative solutions can be found to address scenarios where consumers do not receive the goods or services they pay for. However, this will need to be considered carefully as payment initiation service providers will understandably seek that any consumer protection regime will be proportionate and fair to all participants in the payments flow.

There is also a lot of potential in developing new products in relation to variable recurring payments that can be offer a similar type of payment offering as direct debit payments and this will be a key priority as set out above.

The JROC is also open to account providers entering into arrangements with third party providers (TPPs) to provide “premium APIs” which can be chargeable and therefore create a revenue stream and commercial incentive for account providers to prioritise the development of better availability and performance in the open banking space. However, certain stakeholders are concerned that this should not be at the expense of account providers providing the mandated access to TPPs required under the Payment Services Regulations 2017 and that the development of dedicated interfaces as currently required should be the priority before focusing on premium APIs.

How is the regulatory framework evolving?

The Report also proposes plans for the OBIE to transition to an “interim state”, in which a future entity will be overseen by the JROC (for non-Order activities), and the CMA (for Order activities), prior to the implementation of a long-term regulatory framework. The interim state began in early 2023, and the JROC expects the movement to the future entity to begin later this year.

The Report gives guidance on what to expect from the future entity, including: adhering to high standards of corporate governance, having a wide membership base and ensuring the needs of end users are represented in decision making.

This a positive step in ensuring that there is a lead body responsible for supervising the ongoing development of open banking in the UK and this is a current differentiator to the EU.

How will the JROC measure success?

The process of achieving the JROC’s vision will take time and collaboration from all market participants. Success (amongst other things) will be assessed in the following ways:

• Greater innovation
• Growth of the eco-system
• A low number of incidents and issues
• Increased reliance and use on Open Banking
• The development, and take-up of a commercial model and framework for Open Banking

What are the next steps?

The report includes a full timetable of next steps.

The JROC will host a webinar to summarise its proposals this month. In Q4 the JROC (with the collaboration of market participants) will set out a detailed plan for the future entity and the OBIE’s transition. The JROC will also provide further guidance on the actions detailed under the roadmap, with a first progress report due shortly.

We are here to help, so please do get in touch with the team if you have any questions.

If you would like to read Bird & Bird’s previous alerts, please check out our FinTech webpage here.