Open Banking represents a social, technological and ideological shift in banking and earlier this month the Commonwealth Government released an "Issues Paper" on its "Review into Open Banking in Australia" (the Review). Central to the idea of Open Banking is more seamless, efficient and cost effective access to a customer's financial and transaction history, essentially by giving customers greater access to, and control over, their own banking data and allowing them to decide who may access that data.
In an Open Banking world, customers (at the centre of that world) should be better placed to make fully informed decisions about their financial futures, including by selecting financial service providers and financial products best suited to their needs.
Open Banking has significant consequences for customers and financial service providers alike and as Open Banking moves closer to becoming a reality in Australia, everyone needs to understand the proposed changes and how it will affect them.
Background to the Review
The Review was preceded by a number of parliamentary reports/reviews on the topic of access to data between 2014 and 2017, all of which advocated for customers having improved access to their data.
The purpose of the Review is to make recommendations to the Treasurer on:
- the most appropriate model for Open Banking in Australia;
- a regulatory framework under which an Open Banking regime should operate; and
- a roadmap and timetable for its implementation.
Purpose and Highlights from the Issues Paper
The Issues Paper provides a high level introduction to Open Banking and helps to provide some background and context to the issues faced by the Review.
The Issues Paper identifies some of the potential benefits of Open Banking as being:
- improving competition between financial service providers resulting from customers having an improved ability to assess which products and services meet their personal needs;
- easier access to the market for new financial service providers;
- driving innovation in financial service and product offerings; and
- improving existing non-banking services, such as better connections with accounting and other business/personal information software/apps.
It recognises and addresses a number of the risks and costs that are likely to be associated with Open Banking, including that:
- financial service providers may have additional costs to bear as a result of having to complying with a new or enhanced regulatory framework;
- appropriate access and privacy safeguards will need to be clearly defined and implemented to minimise potential data breaches/incidents (whether criminal or otherwise); and
- a rationalisation of the financial services markets, particularly if some financial service providers find themselves squeezed out of opportunities where their customers are able capture the value in their data for themselves.
The Issues Paper also touches on a number of other Open Banking initiatives from around the world, particularly in the UK, EU, US and Asia, which suggests to us that the Review is likely to draw upon the experiences of these global initiatives to assess what works and what doen't work for consideration/implementation in Australia. An interesting question will be whether how the Review addresses and resolves the issues surrounding the appropriateness of linkages between other Open Banking systems in those other jurisdictions.
The Review – Open Banking under Construction in Australia
- A Model for Open Banking - Data Sharing
In considering what the most appropriate Open Banking model for Australia is, the Review will consider (amongst other things):
- what data should be accessible to provide the most benefit for customers;
- which financial service providers should be required to provide that data, having regard to, amongst other factors, the costs of making it available;
- whether any types of customer will require additional protections, for example, what type of customers will be allowed to direct their information be provided to other persons; and
- to whom the data may be shared with and, functionally, how will the sharing occur.
- Privacy Issues
As a result of the privacy issues inherent in an Open Banking system, and particularly, the risk that unauthorised access may have dire financial consequences not only for customers but for financial markets more broadly, the Review will consider how to minimise and mitigate the risks of data leakage (or other such incidents) and what avenues should be available for redress and compensation should leakage occur. - Changes to the Regulatory Framework
As with much of the current evolution in financial services, Open Banking does not sit comfortably within the existing regulatory framework. Accordingly, the Review will consider:
- the appropriateness of current regulation and give recommendations on an appropriate governance framework for its continued development and existence; and
- whether the Productivity Commission's suggestion that customers have a 'comprehensive right' to access and control their data held by businesses and the Government is appropriate.
The Future for Open Banking – Once the Dust Settles on the Review
In summary, the Review is tasked with developing a roadmap and implementation framework for achieving an Open Banking framework in Australia. A lofty and worthwhile goal supporting greater transparency and market related behaviours for customers of Australia's financial system.
If you would like to help shape the debate on the future for Open Banking in Australia, submissions may be made to the Review and are due by 22 September 2017.
We look forward to the outcomes from the Review and following the development and implementation of an Open Banking system in Australia.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
