Increased competition in the financial services sector, even better advice as well as innovative and personalised services for clients – these are the goals the new EU project Open Finance is striving for. As it aims to facilitate access to financial services clients for all market participants, the project is strategically important for financial product distributors.
Open Finance is the evolution of Open Banking, which is already enabling third party service providers to use bank’s customer account data for the purpose of payment transactions. Open Finance goes even further by extending the Open Finance approach not only to all account managers in the financial sector but also to other data and types of transactions. This will allow third parties to access both fund and insurance industry customers. The overriding objective is therefore to provide customer data access to all market participants. By pursuing this approach, the EU wants to strengthen competition not only among financial service providers but also with third party providers from the digital and real economy. Furthermore, it wants to promote innovative products and services. Consumers and businesses should be given the opportunity to access lower-priced products, even better advice, and personalised services.
As the EU is aiming for an open distribution architecture, Open Finance could have significant impact on financial product distributors.
On 24 October 2022, the EU Expert Group on European Financial Data Space submitted its Open Finance Report to EU Commissioner Mairead McGuinness. On 28 June 2023, the EU Commission published its proposals for this project.
In its report, the expert group, in which BVI is representing the European asset management industry, proposes options for data sharing illustrated by several case studies. Furthermore, the expert group outlines the key components for an open financial ecosystem in the EU.
Open Finance will only be able to operate efficiently if the customer‘s data will be provided exclusively for the agreed purpose. Data and consumer protection must be guaranteed. Most importantly, each client’s explicit consent to the sharing of their data is required. After all, Open Finance can only succeed, if it is grounded in the strong trust that the data will be used as agreed.
At the same time, Open Finance must be grounded on a level playing field, i.e., equal and fair access to data. To avoid any competitive distortions, it is important to draw a sharp line between the original customer data (e.g. account number of the securities deposit) and the data refined by the companies, such as results of risk assessments, suitability, and adequacy tests. Otherwise, market participants could save their own operational effort at the expense of their competitors. This, however, is not the intention of Open Finance, even though such approaches are being discussed in the EU.
The Customer’s data should be made available to the market via digital interfaces. To prevent financial companies and their customers from facing high additional costs, the aim is to standardise the interfaces. The BVI advocates the deployment of ISO standards - such as the LEI - to identify parties and transactions. Using a holistic data model (CDM) would further promote this development.
The EU is not expected to take any specific steps towards Open Finance until the next elections to the EU Parliament have been held in 2024.