The UK’s burgeoning fintech industry continues to showcase its prowess on the global stage with the recent $8bn listing of Wise and record breaking $800M funding round by Revolut. The innovative and supportive regulatory environment fostered by the UK’s Financial Conduct Authority is consistently identified as a ‘cornerstone’ of the UK’s Fintech success. Its regulatory leadership has been exemplified by the uptake of several key initiatives globally, such as the Regulatory Sandbox.
Another example of this leadership and its benefits has been the success of the regulatory led approach to Open Banking which has clearly demonstrated the benefits of unlocking consumer financial data in a more structured manner. This success has also been noticed overseas and now a raft of countries are implementing similar consumer data right policies that are much more ambitious in scope. Meanwhile, the UK has been slow to move beyond its initial successes. In this blog, we take a look at the progress of some of these international ecosystems to see if the UK is at risk of losing its regulatory edge.
Australia and Singapore have both received plaudits for their approaches, which differ from the UK in key areas.
Singapore follows a predominantly regulatory led model. It has a centralised approach to data sharing, with the Singapore Financial Data Exchange consolidating financial data from banks and government agencies. The government link means consumers can access or authorise data sharing using the same government identity they use for other central services. This link between government authorised digital identity and personal data is a world first. Currently banks aren’t mandated to add consumer data, but the uptake has been impressive with surveys showing strong support and 97% of banks acknowledging it is important to their business. However compared with the UK, progress has been slow in other regulated markets including energy and telecommunications.
When announced in 2017, Australia’s ‘Consumer Data Right’ was world leading in its broad scope. Instead of solely targeting the banking sector, the legislation gives consumers the right to share their information across the economy. Implementation is still on a sector by sector basis but the overarching regulatory structure is in place to make fast progress. Driven by Australia’s Treasury, Open Banking was the first implementation and follows a similar model as the UK. The depth of the data available from banking is impressive – by year end, consumers will be able to share transactions, savings, term deposits, credit cards, mortgages, personal loans and next year this will include business banking areas like Forex and Business loans. They are currently consulting on rules for Open Energy with the Telecom sector expected to follow. Thanks to the already established wide ranging data rights for consumers, Australia looks to have pulled in front of the UK.
Challengers elsewhere are behind in their regulatory development.
The US has long followed a ‘market-led’ approach in the Open Banking space, pioneered by firms like Mint and Plaid. This showed signs of changing when Joe Biden’s recent executive order listed Open Banking near the top of the Consumer Financial Protection Bureau’s list of regulatory objectives, however progress is expected to be slow.
South Korea has been a world leader in uptake, with over 70% of the population engaging with an open banking product, however it is limited in its current scope for further regulatory progress.
New Zealand is following Australia’s lead and drafting legislation to introduce a Consumer Data Right later this year.
Back in the UK, over 2.5 million consumers and businesses are now using Open Banking enabled products, built by an ecosystem of over 300 fintechs. The recent update of Open Banking for variable recurring payments is a welcome evolution, but there is a need for clarity on a longer term strategy for open finance and beyond.
Both the FCA and Ofcom are consulting on possible open data frameworks and Icebreaker One is leading in the Energy sector. This progress is reliant on the government introducing legislation similar to Australia that mandates participation in Smart Data schemes, which is hoped for ‘when parliamentary time allows’.
The Kalifa Review, an analysis piece produced for the Government on the UK’s fintech sector, recently outlined regulatory leadership as a key opportunity/risk to the UK’s ongoing leadership in the global fintech race. The UK has unfortunately fallen behind on the regulatory front without a centralised strategy that recognises the connected nature of these open data ecosystems. The Government needs to take this back with a consumer data right that will support our continued global fintech leadership well into the next decade and beyond.