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The UK’s Joint Regulatory Oversight Committee (JROC) has released its recommendations for the Open Banking Future Entity, including what its funding model should look like, and invited companies to submit comments by May 20.
JROC comprises representatives from the Financial Conduct Authority (FCA), the Payment Systems Regulator (PSR), the Treasury and the Competition and Markets Authority (CMA).
"JROC’s proposals for a future entity which delivers the next phase of open banking will enable the UK's world-leading financial and technology industries to further harness the opportunity that open banking presents,” said JROC co-chairs Chris Hemsley, managing director of the PSR, and Sheldon Mills, consumer and competition lead at the FCA.
Open Banking Limited (OBL), the entity responsible for overseeing open banking standards and infrastructure in the UK, has welcomed the proposals.
“JROC’s report provides much-needed clarity on the design of the interim entity, future entity, and long-term regulatory framework for open banking,” said Marion King, chair of the OBL.
In a press statement, King said that JROC’s report, along with the recently published government Smart Data Roadmap, provides certainty to the market. “This will allow for continued investment in our world-leading and customer-centric ecosystem, as it moves us forward on the journey to deliver the next phase of open banking in the UK.
“I encourage all participants to contribute their views to ensure the future framework supports the continued delivery of innovative products and services and enables the creation of a data-driven economy,” she continued.
“We must maintain this momentum to secure a long-lasting evolution of payment and data-sharing solutions to deliver a true public good.”
Funding
JROC confirmed in the consultation that its preliminary recommendation is to establish a funding model that shares the fixed costs of the future entity equitably across banks and third-party providers (TPPs).
This would be done using a tiered model that shares the costs of developing, delivering and operating premium application programming interfaces (APIs) across the firms that wish to develop and/or offer the specific premium API, using a “per use” or flat fee model.
JROC has also recommended that the fees representing the fixed cost elements of the future entity are split between banks, otherwise known as account servicing payment service providers (ASPSPs), and TPPs on a tiered basis, with four categories for each type of firm.
The fixed costs would represent the central services available to all open banking participants.
This will include the future entity’s costs for the provision of services, which to date have been provided under the 2016 CMA Order.
These categories would be, for ASPSPs, measured by the number of accounts held that have or could activate open banking services, with an exemption for the smallest firms.
TPP categories meanwhile would be measured by outbound API calls, with different metrics for data API calls and payment initiations, and JROC envisages the boundaries for each of the categories across ASPSPs.
TPPs would need to be determined on a periodic basis, and would need to take into account the fixed costs for the relevant year and the characteristics of firms within the ecosystem.
Governance
JROC has also proposed the establishment of an appointments committee tasked with forming an independent board for the future entity.
This committee would comprise seven members, including two end-user representatives: one for consumers; and the other for businesses.
Additionally, two representatives from TPPs and two representatives from ASPSPs are recommended.
An independent advisor, possessing expertise in the open banking ecosystem, is proposed to chair the appointments committee and have the decisive vote in board appointments.
The selection process meanwhile for committee members would involve the independent advisor choosing the business and consumer representatives, while ASPSPs and TPPs regulated by the FCA and authorised to provide open banking services would respectively pick their representatives.
The board would subsequently be tasked with establishing the future entity’s capabilities and functions.
In its consultation, JROC also proposes that the future entity should, at a minimum, undertake several key roles.
These include serving as the primary standard-setting body for open banking services, monitoring API performance and ensuring ecosystem participants' compliance with standards.
Additionally, the future entity would oversee and encourage firms' adherence to these standards, although regulatory enforcement action would remain under the purview of regulators rather than the future entity.
Core support services, such as complaints and dispute resolution, would be provided to ecosystem participants, along with certificate and directory services.
Furthermore, the future entity would facilitate the development of commercial arrangements and coordinate with sub-sector-specific regulators and organisations as necessary to ensure the effective development of the ecosystem.
To find out more about the future of open banking in the UK, read Vixio’s exclusive interview with OBL CEO Henk Van Hulle.
