WASHINGTON–The acting Comptroller of the Currency has weighed in with his thoughts on open banking.
Open banking, which is a financial environment in which there is consumer-permissioned sharing of financial data with third parties and the consumer always owns the data—has received support from at least one federal regulator, and as CUToday.info reported here, the CFPB is also preparing for an open banking environment.
In remarks to a conference sponsored by Financial Data Exchange, Acting Comptroller Michael Hsu said open banking offers greater innovation, efficiency, and competition and “will rely to a great extent on a richer and more complex financial ecosystem.”
What Traditional FIs Must Do
Traditional financial institutions as data providers will have to interact with aggregators, fintechs, technology firms, and even competing financial institutions.
“They will need to expand from reliably handling their customers’ money, to also reliably handling their financial data,” he said. “While this may bring significant benefits to consumers and generate new avenues of value creation, it will also likely raise accountability challenges when mistakes are made and consumers are hurt, especially as the set of players in the space grows and proliferates,” he added.
Hsu suggested “open banking” will empower consumers, foster competition, and expand financial inclusion, all of which he said the OCC supports.
The Global View
He told the meeting open banking frameworks vary around the world, but generally have rules to address consumer authorization standards, articulation of rights and responsibilities for data providers and data users, enforcement of privacy requirements, security expectations for sharing of information, and standards for third parties engaging in information sharing, such as data aggregators.
According to Hsu, the OCC’s third-party risk management expectations provide a foundation for banks to assess those relationships. He added evolution and refinement of those expectations may be needed as open banking and the fintech landscape evolve.
Can’t Become ‘Starstruck’
“If we become too starstruck with data and too wedded to statistical prediction, we risk locking people and communities in and overlooking their potential and the possibility of change and progress simply because of ‘what the data say,’” he said.
Hsu also had a warning over what he said is the blurring of lines between banking and commerce.
“Traditionally, we have sought to maintain a separation of banking and commerce in order to mitigate excessive concentrations of power, threats to bank safety and soundness, and systemic financial risk,” Hsu said. “I will skip the history lesson here but will note that the power of network effects with digital businesses seems to drive technology firms towards constant expansion into adjacent fields, including banking. This bears careful monitoring and close collaboration among government agencies.”
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