Open banking next step: A request for public input on how to structure the 'Future Entity'

The Joint Regulatory Oversight Committee (JROC) consists of the Financial Conduct Authority (FCA), Payments Systems Regulator (PSR), HM Treasury (HMT) and the Competition and Markets Authority (CMA), and is tasked with realising the full potential of open banking. To this end, they have published recommendations for the next phase of open banking in the UK.

Until now, open banking has been governed by the CMA Order, funded by the nine largest banks and building societies (the CMA9), and administered by the Open Banking Implementation Entity (OBIE).

The JROC proposals will transition from the OBIE to the Future Entity by January 2026. Feedback on the proposals, regarding the best structure, governance, and funding for both its interim and longer-term (future entity) model have been invited. The voices of the public matter and I hope we will receive many responses. The consultation is open until 20 May 2024 and I have set out the recommendations and related questions below.

1. Do you agree that they Future Entity should be a company limited by guarantee? If not, what corporate structure would be better and why?
2. Is there a risk that the recommended funding model may unintentionally engender behaviours that are not in the best interests of the entire open banking ecosystem?
3. How should the Board of the Future Entity obtain advice to represent the interests of the entire ecosystem, including consumers and businesses? Advisory groups, or directors representing certain areas of the ecosystem. Which option do you think is most appropriate and why?

The CMA Order demonstrated effective leadership, establishing an open banking ecosystem that already has over 7 million active users. It was an excellent start but there remains such potential to transform payments for the benefit of all, citizens and UK plc, consumers, merchants, and payment providers.

The Future Entity will be at the heart of the open banking ecosystem for the long term, taking forward the role of a central coordinating and standard setting body, enhancing and standardising the open banking experience for all. The standards it sets and maintains, and the services it provides will be the backbone of open banking, it may also have the ability to expand to support other industries and to help to deliver progress against related Smart Data initiatives.

The Data Protection and Digital Information Bill (DPDI Bill) will introduce a Smart Data scheme. Under the same Bill, JROC is recommending that the Future Entity takes the form of a UK established company and an interface body. The Future Entity will take into consideration the interests of the open banking ecosystem as a whole and will maintain and develop the standards and infrastructure required for open banking to enable good outcomes for end users through safety, control, and value.

There are different funding models which could be implemented for the Future Entity, which range from a flat fee per member of the open banking ecosystem, through tiered funding amounts based on the characteristics of the firm in question, to charges per service used or a pay per click model. Each of these options has benefits and disadvantages and will impact on the shape of the ecosystem.

JROC’s preliminary recommendation is that a funding model is established which (a) shares the fixed costs of the Future Entity equitably across account servicing payment service providers (ASPSPs) and third-party providers (TPPs) using a tiered model; and (b) shares the costs of developing, delivering and operating premium APIs across the firms who wish to develop, or offer the specific premium API, using a “per use” or flat fee model.

The Future Entity must serve the interests of the ecosystem as a whole and should ensure that it receives appropriate advice. JROC recommends that this is achieved through the creation of ad hoc advisory groups covering specific areas as necessary. JROC would have silent observer status at all Board meetings and also intends to form an advisory group to the Board with regular progress reports covering risk and any other issues.

A final recommendation regarding recruitment to the Board is that an Appointments Committee is created with the duty to establish an independent Board underpinned by a set of values that include an emphasis on integrity, transparency and promoting ethical behaviour.  It is recommended that the Appointments Committee consists of seven members:

• Two end user representatives: − one consumer representative; and − one business representative.
• Two TPP representatives.
• Two ASPSP representatives; and
• An independent advisor with the necessary expertise to appoint a Board within the open banking ecosystem.

The independent advisor should chair the Appointments Committee and should have the final deciding vote on any Board appointments. The end user representative and consumer representative should be chosen by the independent advisor; and the two ASPSP representatives should be chosen by ASPSPs and the two TPP representatives should be chosen by TPPs in both cases the ‘selectors’ should be regulated by the FCA and have the relevant permission to provide open banking services.

Recruitment consultants could support the creation of relevant job descriptions for the Board positions in consultation with OBL and JROC and establish a shortlist of Board members for the independent advisor to have the final vote.  Alternatively, a recruitment consultancy could be engaged directly with clear instructions and nominate the relevant directors.

According to Open Banking figures 13% of digitally active consumers and 18% of small businesses in the UK are now actively using open banking enabled products and services to manage their money and to make payments. This is good progress but so much more can be done.

We have considerable opportunities, through open finance, to extend open banking-like data-sharing and third-party access to a wider range of financial sectors and products, such as savings, investments, insurance, pensions, and mortgages.

I hope the public engage with the process of making sure the Future Entity and the future of open banking and open finance in the UK continues in the impressive tradition started back in 2017. I look forward to 2027 in the hope that as we mark the 10th anniversary since the CMA order and the Future Entity’s first birthday, we have an open banking and open finance ecosystem that works for all, that would be something truly significant to celebrate.