Open finance – Assessing FIDA and its implications
The European Commission's recent proposal for a financial data access (FIDA) framework is key for the future of open finance. With the potential to empower customers and foster innovation, FIDA aims to provide secure and authorised access to a wide range of personal and business-related financial data.
The European Commission's FIDA proposal aims to provide secure access to a wide range of financial data, empowering customers and fostering innovation in the realm of open finance.
Article 4 within the FIDA proposal requires data holders to offer real-time access to financial data, promoting transparency and informed decision-making. However, clarifications are needed regarding customer rights and the role of Financial Information Service Providers (FISPs).
While FIDA enhances transparency and data rights, concerns about clarity, innovation, and accessibility for vulnerable consumers need to be addressed for open finance to reach its full potential. A balanced approach can ensure a secure and beneficial financial data ecosystem.
Earlier this summer the European Commission published its proposals for the next phase of financial regulation in the EU. This included the third Payment Services Directive (PSD3), which will be coupled with a new Payment Services Regulation (PSR1). In addition, the Commission set out its initial position for a new financial data access (FIDA) framework and here we will take a closer look at the latter, in particular the pivotal role of Article 4 within the FIDA proposal, its implications for customers' data rights, innovation, and the balance between accessibility and affordability for vulnerable consumers.
Open banking, meet open finance
The financial industry is witnessing a significant shift towards open finance, allowing customers greater control over their financial data and fostering innovation. The FIDA proposal is a notable step in the advancement of open finance, and Tink, being a leader in open banking that offers many services that would be regulated through the FIDA framework, is closely involved in shaping this discussion.
FIDA aims to create a comprehensive framework for the secure and authorised access to financial data, extending the principles established under the General Data Protection Regulation (GDPR) to cover both personal and business-related financial data.
One of the important changes that FIDA is proposing is its potential to foster innovation by granting financial information service providers (FISPs) the right to access a wide range of financial data, such as mortgages, loans, and pension data on behalf of a customer. By regulating FISPs, FIDA increases transparency and credibility in the industry.
FIDA suggests that data access should be facilitated through the creation of ‘data sharing schemes’, which would provide the technical specifications to facilitate open finance services. These schemes would also allow data holders to charge a premium for the usage of any dedicated interfaces offered to FISPs.
At Tink, we welcome the idea of data access and provision in accordance with a common ‘data sharing scheme’. In fact, over the years, Tink has made a major contribution and played a leading role in the formation of the SEPA Payment Account Access (SPAA) scheme under the European Payment Council (EPC). The EC points to the SPAA scheme as an example of what data sharing schemes could look like, with clear technical, operational and commercial stipulations to allow the participants of the scheme enjoy a fair distribution of value and risk.
We do, however, hold some reservations and concerns at this early stage. Naturally, with a continent-wide proposal covering something as essential as the access to financial data, there are many stakeholders and our view will be one of many as the proposal is subject to amendments in the coming months and years before being implemented.
The need for clarification in Article 4
In the Commission’s proposal for a regulated framework for financial data access, Article 4 is succinct and simply says:
The data holder shall, upon request from a customer submitted by electronic means, make the data listed in Article 2(1) available to the customer without undue delay, free of charge, continuously and in real-time.
Although the term ‘free of charge’ is somewhat misleading – since the availability of a real-time interface is typically part of an overall service charge – we believe that Article 4 is a crucial aspect of the FIDA proposal, as it empowers customers to take control of their financial information whether the financial service provider currently offers a user interface or not.
By imposing all financial data holders to provide real-time access it fosters transparency and enables more informed financial decision-making. We want to see empowered customers who understand their data and have a streamlined financial journey.
However, Article 4 requires further clarity. One critical aspect that requires clarification is that the customer should have the right to:
Access this data themselves
Automate such data access with software
Authorise an FISP to access the data on their behalf
This clarification ensures customers remain in control of their data while enjoying the convenience of utilising FISPs for data access, whether the financial data holder is a member of a data sharing scheme or not.
Potential impact on innovation
Another point of contention lies in the requirement for data holders and FISPs to participate in data sharing schemes within 18 months after enforcement of the FIDA framework. This obligation could lead to much confusion concerning the qualification of a data sharing scheme and, as a result, high fragmentation of the technical, operational, and commercial conditions of data access between local and international schemes. This increases complexities for data holders, data users, and data owners.
Tink believes that participation in such schemes should be optional. With the minor improvement to Article 4, it will be in the financial data holders’ own interests to find a collaborative model giving them the opportunity to request compensation for the development and provision of machine-to-machine interfaces – such as APIs – used by FISPs to access or retrieve financial data. The EPC SPAA scheme is evidence that such schemes can be developed on a voluntary and commercial basis, without opening the Pandora’s box and huge overhead of any price regulation.
Safeguarding the vulnerable
The proposal's allowance for data holders to charge for access to financial data raises concerns about affordability and accessibility of open finance use cases – particularly for financially vulnerable customers.
Financial data holds immense value in shaping services such as personal financial management and credit risk analysis. Vulnerable individuals rely on these services for protection and support. Any financial incentives introduced for data holders as part of FIDA must be carefully balanced to avoid undermining critical services meant to shield the vulnerable from financial distress.
In summary, the FIDA proposal presents an important milestone in the journey towards open finance, extending data access rules to businesses and individuals alike. While it lays the groundwork for increased transparency and data rights, concerns regarding clarity, innovation, and the impact on vulnerable consumers must be thoughtfully addressed. Striking the right balance between empowering innovation and protecting the financially distressed will be key to achieving the full potential of open finance.
By addressing the concerns raised and focusing on a consumer-centric approach, the FIDA framework can facilitate a secure and transparent financial data ecosystem that benefits all stakeholders.
Furthermore, we would generally be in favour of a broader perspective on data access, suggesting that an open data framework, rather than a finance-specific one, would be more beneficial in the long run. This broader approach could ensure that various types of data, such as health, utilities, and more, are accessible and utilised effectively.
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