With its new open finance framework--the , or Fida, presented in June 2023--the European Commission is aiming to bring the financial sector into the digital age by modernising payments, improving consumer protection, boosting open banking and establishing rights and obligations with regards to managing customer data.
“Open finance is about making sure that users and customers are in control of their data,” Jan Ceyssens, head of the digital finance unit in the directorate general for financial stability, financial services and capital markets union at the European Commission, told Delano during an interview.
Ceyssens, who spoke at an organised by the Luxembourg Bankers’ Association (ABBL) and Deloitte in January, sat down with Delano after the conference to share more details about open finance and Fida. “In a nutshell, it’s about enabling the responsible and controlled sharing of client data in the financial system.”
Benefits of open finance
A key element of the European Commission’s proposal, as explained by Deloitte’s and the ABBL’s in a , is the idea of permission dashboards that allow users to decide what kind of financial data they wish to share (or not to share).
For Ceyssens, there are several benefits. One is the “stronger control” over data and the possibility for a user to decide what happens to his or her data. It’s important to provide clear tools and instruments to ensure that consent to data use can be efficiently granted and revoked in an informed manner, he added. “I think that’s one of the concrete benefits--especially for retail clients, which today cannot always navigate various IT systems and cannot always easily access the information [regarding] what consent has been given to whom.”
A second benefit is that customers--whether they are individuals or small businesses, for instance--will be able to more easily “access a broad range of data-driven innovative financial services,” should they wish to do so, said Ceyssens. Let’s say, for example, a user wants advice based on their complete financial situation, including all the accounts or financial instruments that they may hold. If a bank or other investment advisor is able to access all of this data, then the firm may be able to provide more tailored, data-driven advice.
Open finance can enable smaller players--in a data-driven economy--to offer data-driven, innovative products based on a broader range of data
A third benefit is more for financial institutions. “I think data is indeed the future, especially in finance,” said Ceyssens. Europe has a relatively diversified financial sector, with players of varying sizes. “Open finance can enable smaller players--in a data-driven economy--to offer data-driven, innovative products based on a broader range of data.”
Challenges around implementation
But implementing all of this can be costly. One of the challenges will be implementing structured and standardised data policies without incurring excessive costs, noted Ceyssens. Another challenge is to set the right “boundaries” so that that more advanced data (such as trade secrets or intellectual property) in which financial institutions have invested remain protected.
Havard and Kautz in our previous interview noted that the permission dashboards will need to be transparent and clear for users, a concept that Ceyssens echoed. For him, “the third challenge is to find the right policies to make sure that consumers can give a meaningful consent, which is well-reflected and also corresponds to their real desires and wishes.”
Fida and its scope
The Financial Data Access framework aims to establish the principle that customers need to be in “meaningful control of their data,” said Ceyssens. Data holders are obliged to make data accessible to clients, as well as provide tools for customers to manage the content.
A second element is that when customers actually want data to be accessed by third-party providers, financial institutions that hold this data are obliged to grant this access. But this should be granted in a manner that ensures there is a “fair balance” between the different interests, as well as “compensation” for making the data available in specific technical formats, he said.
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Finally, the financial sector itself, together with the data holders, users and consumers--and not the legislator, regulator or supervisor--should come together to set up financial-data sharing schemes so that there is a single framework, instead of multiple contracts or arrangements between thousands of different financial institutions.
“The scope of Fida is the financial sector beyond payments,” said Ceyssens, with payments still covered by . “It will cover data in the financial sector, but will also be a building block to enable data-sharing across different sectors. This is important for the financial sector to have access not only to financial data, but indeed also data on sustainability, on energy performance of buildings, or other matters, for example.”
Comparison to other countries
With the Payment Services Directive, said Ceyssens, “Europe was definitely ahead in terms of creating a regulatory framework for customer data access and exchange in the financial sector.” Since then, there have been “number of interesting developments in a number of jurisdictions,” including the United Kingdom, Singapore, Australia, Brazil and the United States.
“I think if Fida was adopted in the way we have proposed it, Europe would still retain its pace and its advantage in this area,” said Ceyssens. One of the reasons fintechs do business in Europe, he added, is because of its framework for financial data access.
Timetable: into next year
With it comes to a timeline, the European Commission has made a proposal on the financial data access regulation, which is now being debated in the European Parliament and the council of finance ministers, said Ceyssens. The advancement of Fida now depends on them.
“The first signals are positive,” he added. “But the timetable for this approval is still open. It is something which can certainly be expected to last until the end of the year, or into next year. And from the moment of the ultimate publication of the rules, we [the European Commission] have proposed that there be an 18-month overall implementation period.”
Regarding the possibilities of a “phased” implementation by sector, the commission analysed this option in its impact assessment but did not find it “fair” or “appropriate,” said Ceyssens. “The challenge and the importance of making sure that data is handled properly and that customers have this control applies across the board, so not just the banks but firms across all parts of the financial sector need to start preparing for this,” he added. “I think it’s important that all players start the work at the same time, because this principle is relevant in all sectors.”
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .