After the gold rush - JROC publishes recommendations for next phase of open banking in the UK

The joy of six (years) - from revolution to evolution in open banking

The UK has been at the forefront of open banking since its inception in 2017, following the Competition and Markets Authority's Retail Banking Market Investigation. 

Whether the past six years have fully transformed competition in retail banking is open to debate. But the arrival of open banking has undoubtedly sparked innovation in the sector, been a fillip for fintechs, and ultimately delivered tangible improvements to customer outcomes. 

There are now seven million active users - individuals (lamentably, as ever, referred to as "consumers") and businesses - of open banking in the UK. And with open banking payments having more than doubled between 2021 (25 million) and 2022 (68 million), the Joint Regulatory Oversight Committee (JROC) - comprising the FCA, PSR, Treasury and CMA - has set out its recommendations for the next phase of open banking in the UK. 

A roadmap for reform

At the heart of the JROC's recommendations is a roadmap of priorities for the next two years, comprising five themes:

• levelling up availability and performance
• mitigating financial crime risks
• ensuring effective customer protection 
• improving information flows (to third party providers and end users)
• promoting additional services, piloted by non-sweeping variable recurring payments (VRPs) ("sweeping", aka "me-to-me" VRPs, relate to transfers between two accounts belonging to the same person, and are already mandated by the CMA)

The JROC has also reaffirmed its intention to transition from the Open Banking Implementation Entity (OBIE) to a somewhat cryptic "future entity" and a long term, steady state regulatory framework (via an interim set up under which the future entity is overseen in parallel by the Committee (for non-Retail Banking Market Order - the CMA Order - activity) and the CMA (for CMA Order activity). 

The ambition for the long-term regulatory framework - which will aim to deliver a "sustainable, safe and scalable ecosystem for open banking" is particularly interesting. The recommendations underscore the Treasury's view that:

• the FCA should regulate firms in relation to open banking services, including payment initiation and data sharing; and
• the PSR should regulate open banking services related to a payment system (and participants in that payment system).

Moreover, the government's ultimate aim is that - flowing down from a smart data scheme created under the Data Protection and Digital Identity Bill - the Treasury will be able to empower the FCA to oversee data sharing requirements for firms who hold or receive data, or offer services, within the scope of a smart data scheme for open banking. 

What happens next?

The Committee will provide a further update in Q4 2023, sharing progress made on the priority items set out in the recommendations. It will also provide further detail on the proposals for the future entity.