Open Finance

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 aims 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. McKinsey & Co. expect around 30 per cent of banking turnover to be affected by open finance as early as 2030.

As the EU is aiming for an open distribution architecture, Open Finance could have a significant impact on financial product distributors. 

The EU Expert Group on European Financial Data Space, which presented its report on Open Finance to EU Commissioner Mairead McGuinness in October 2022 and in which BVI is representing the European asset management industry, proposes options for sharing data 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 is 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.

In the summer of 2023, the EU Commission presented a proposal for a framework, the Financial Data Access (FiDA) Regulation. The EU Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted the draft report by a majority with some amendments in April 2024. However, the legislative process has been delayed by the EU Parliament elections in June 2024.

BVI assumes that the new parliament will draw on the previously negotiated results and vote on the start of interinstitutional negotiations. Hungary will take over the Council Presidency on 1 July 2024. It is expected that the Council will reach a general approach at the end of 2024. The trialogue negotiations between the Commission, Parliament, and Council could then begin in early 2025, and the legislative text could therefore be available in mid-2025. Given the extension of the planned implementation phase to 30 months, the exchange of customer data under FiDA could begin in early 2027.