Bringing the Financial Services industry up to date
This week Prince Charles gave the Queen’s speech to open a new session of Parliament, announcing the Government’s agenda for the coming year. As expected, there were two key Bills for the future of data-driven financial services. The Data Reform Bill and the Financial Services Bill are both part of the so-called ‘Brexit Super Seven’ heralded by the Prime Minister as bills designed to do away with ‘unnecessary barriers inherited from the EU’.
With cutting red tape in mind, the Financial Services Bill looks to rewrite the rules for the UK’s regulator, the Financial Conduct Authority (FCA). The Government’s ambition is that a more supportive regulatory environment for firms will help support jobs and growth and reinforce London’s crown as a global financial capital.
The Data Reform Bill promises to create a pro-growth and trusted UK data protection framework and modernise the Information Commissioner’s Office (ICO). It will also give the Government powers to mandate participation in Smart Data initiatives – giving the ability to build on the framework which started with Open Banking and Pensions Dashboards to extend to Open Finance and beyond to Smart Data. The Government expects that the extension of Smart Data will deliver new innovative services, stronger competition in the affected markets, and better prices and choice for consumers and small businesses.
An exciting future ahead
At Smart Data Foundry we understand that the future of financial services will look very different to the world regulated by today’s FCA. In the last decade, an exciting but sometimes complex ‘fintech’ landscape has emerged.
Years ago, in a simpler time, we might have enjoyed a clear one-to-one relationship with our bank. We trusted the institution; we had a relationship with a bank manager; we held all our financial products with that provider. When something went wrong, we knew who to talk to and how to resolve it.
Nowadays things aren’t so simple. We might have a digital bank account for day-to-day spending, and accounts with other providers for cashback, or for joint spending. We might use products and services offered by fintech companies that are not regulated in the same way as banks. The bank itself might build in features and offers that are offered through partnerships, but because they are offered online, the lines can sometimes be blurred.
It’s harder than ever for consumers to understand exactly what they’re buying when they choose a financial services product. Just look at the prepaid card apps that, for all intents and purposes, act like bank accounts. Open Banking and Open Finance also open up new questions. Which regulators are responsible for policing these new providers and compensating consumers if something goes wrong?
Deconstructing banks and reimagining how financial products are offered has helped to improve choice and drive down prices for consumers. There are huge opportunities to continue to innovate for years to come.
Open Finance for all
Of course, we want the new Financial Services Bill to reflect these changes in the industry and create opportunities for firms. But when we think about creating a supportive regulatory environment, we must be careful that we balance the industry’s needs with the needs of consumers. As the years leading up to the 2008 crash taught us, deregulation would be a dangerous path.
We also need to recognise that regulation will play an important role in enabling innovation. Experience shows that the following key pillars are needed to develop an ecosystem which supports innovation and ensures that consumers are protected when using data-driven financial services:
- Data rights: The data has to be available, by placing responsibilities on firms to provide it and giving consumers’ clear rights to access it and share it with third parties.
- Data, technical and communication standards: Set in consumers’ best interests through independent governance to allow the development of services that consumers want and need.
- Regulation, conduct and liability frameworks: These need to be in place to protect consumers, give them confidence and access to redress if something goes wrong.
Unless all three pillars are in place then the experience of past initiatives, such as Midata, shows us that progress could be slow. Without clear rights to their data and independently set technical standards, consumers got a clunky experience and slow progress was made. Banks were worried about allowing customers to share their data with unregulated third parties.
It is only when Open Banking, through the CMA’s Order and last year’s Pensions Schemes Act, put in place all three pillars that significant progress can be made.
The Data Reform Bill announced in the Queen’s speech offers the potential to put all three elements of this framework into place across financial services and other sectors. It can also be used to put in place the long-term regulatory framework for Open Banking so that the end of the CMA Order does not lead to stagnation in the market or risks to consumers going unaddressed.
Creating positive impact through change
At Smart Data Foundry, we want to inform policy makers on how to make sure that these new Bills support innovation and ensure all companies that touch consumer money or data are appropriately regulated. We believe that the only way that the industry can win the public’s trust is by proactively spotting gaps in consumer protection and working to fill those gaps before they cause harm.
Not only do we want to see the FCA’s new remit properly balance industry and consumer needs, but in its role as the manager of the UK’s financial services market, we want to see the regulator work to serve all consumers – not just the rich, urban and tech-savvy. We will publish data-driven research that sparks conversation about how innovation can support financial inclusion, not work against it.
We look forward to being a part of the debate about the Data Reform and Financial Services Bills. We’d love to hear from you to find out how we can work together to open finance for good. Drop us an email to either firstname.lastname@example.org or email@example.com