European Union propounds plan for a financial system with unrestricted access
The European Commission has proposed a new regulation titled the Open Finance Act, aiming to establish a comprehensive framework for financial data access. This draft regulation, unveiled on June 28, 2023, seeks to expand upon the open banking rules introduced by PSD2.
The Open Finance Act introduces several key changes to the current landscape. It expands the scope of data access beyond just banking, encompassing various financial products and services. This move creates a more integrated and flexible data-sharing environment.
Robust security and privacy protections are at the heart of the Open Finance Act. It aims to prevent unauthorized access and misuse of financial data, ensuring strong security measures are in place.
Regulatory oversight will transition from existing bodies to financial conduct authorities, who will manage open finance systems and interfaces. This shift is intended to promote innovation by providing controlled data access to authorized third parties under clear regulatory frameworks.
The Open Finance Act aims to foster innovation by creating an integrated data-sharing ecosystem across financial sectors. In contrast, PSD2 primarily focused on enabling third-party providers to access payment account data, with the purpose of opening up payments markets and enhancing consumer protection.
The Open Finance Act applies to various financial institutions, including credit, payment, and e-money institutions, investment firms, crypto-asset services providers, pension funds, insurance and reinsurance undertakings, insurance intermediaries, and financial information service providers.
Financial data sharing schemes, as established by the Open Finance Act, will introduce a dispute resolution system and a methodology to determine the compensation for making customer data available. They will also adopt rules regarding contractual liability in case data shared is inaccurate, of inadequate quality, data security is compromised, or the data is misused.
The Open Finance Act broadens the scope of financial data to be shared, including balance, conditions, and transactions of mortgage, credit, and savings accounts, savings, investments, insurance-based investment products, crypto-assets, real estate, and other related financial assets.
The draft regulation requires market participants to develop common standards for customer data and interfaces concerning data that are subject to mandatory access. Data holders will be required to grant access to and share customer data upon customers' requests.
When data holders make customer data available to any other data users, they are entitled to compensation. This compensation should be reasonable and based on an objective calculation methodology to be established by financial data sharing schemes.
The draft Open Finance Act also addresses sensitive data, such as data on the assessment of consumers' creditworthiness and data regarding life and health insurance. These data types are excluded from the scope of the Act due to their sensitive nature.
The European Banking Authority and the European Insurance and Occupational Pensions Authority are tasked with establishing guidelines to regulate how personal data regarding consumers can be used for assessing their creditworthiness, as well as their pricing and risks for life and health insurances.
In summary, the European Commission’s Open Finance Act builds on the foundation of PSD2 open banking by widening data access, enhancing security and oversight, and targeting a more diverse financial services landscape. The draft regulation is set to revolutionize the financial industry by promoting innovation, ensuring strong security measures, and providing a regulatory framework for data sharing.
The Open Finance Act, as part of its comprehensive framework, introduces a dispute resolution system for resolving conflicts arising from financial data sharing among various industries, including finance, business, and insurance. This system aims to ensure fair compensation for sharing customer data.
Upon transitioning regulatory oversight to financial conduct authorities, the Open Finance Act also requires the European Banking Authority and the European Insurance and Occupational Pensions Authority to develop guidelines for using personal data in assessing consumers' creditworthiness and insurance pricing, fostering a more secure and regulated industry.
