Pension Dashboards got a much needed shot in the arm from the FCA yesterday , with the publication of a “Call for input” on Open Finance from the FCA yesterday.
The document sets out a route-map to better financial services through the unlocking of data currently held and not shared by market participants.
In short, the FCA’s Competition and Markets division (headed by Christopher Woollard sees this sharing of data as a step forward for the consumer and ultimately the financial services providers who participate.
There are of course risks and these are outline in the document; chiefly
- Mis-use of data
- Homogenisation of products
- Cartel like behaviour by providers
- Operational cost (passed to consumer)
- Frictionless decision making leads to bad decisions.
The FCA looking at these opportunities and risks are asking four key questions
Incentives – Will open finance develop without intervention? Crucially, do the incentives exist for established firms to provide access?
Feasibility and cost – Can all firms develop and offer the access needed to support open finance? What are the costs and barriers involved?
Interoperability and cohesion – What common standards are required for open finance to develop?
Underpinned by clear data rights – Is an adequate framework of data rights in place? If not, what would it be, and how would it be provided?
The FCA clearly see Open Finance as an extension of Open Banking where there was Government intervention (through the CMA, where most banks were able to participated in data sharing, where the CMA were able to create and implement common data standards and where the rights of consumers were underpinned by the Data Protection Act and GDPR.
You sense that the FCA’s questions are rhetorical, the call for input an affirmation of what is bleedingly obvious.
Shortly before parliament broke, AgeWage wrote to Guy Opperman, the once and former pension minister explaining how difficult it had been for it to help a group of around 150 investors get their contribution histories and current fund value for their pension pots.
Several large organisations including the Government’s own pension scheme – NEST and the largest occupational scheme in the country – USS, refused to honour the letters of authority given them by their members. The members did not get their data and did not get an AgeWage score.
True 90% of participants did eventually get the information they’d requested but it often took over 6 weeks to get information that – under Open Finance – would be available at the click of a mouse.
The acceptance of digital signatures, despite being a pre-requisite of handling personal data (according to the Law Commission) was often refused.
Providers often considered the provision of data acceptable only if the party authorised to receive the data was FCA regulated.
Some providers simply were unable to satisfy data requests as contribution histories had been archived or were held on microfiche or even paper.
Our experience is reflected in the FCA’s Call for Input.
The barriers to open finance are manifested in our report, the scale of the challenge that the FCA is posing to the financial services industry is mammoth. “Mammoth” is an accurate characterisation of some of the financial behemoths we spoke to, if they do not evolve, they may face the mammoth’s fate.
The nitty gritty
The FCA paper is not just about high level strategy. It has created an Open Finance working group which has identified what needs to be created for Open Finance to be properly rolled out. technology architecture (eg open APIs)
- operating principles, processes and practice
- security protocols
- certain areas of user experience design
- service level agreements for performance
- liability models
- dispute resolution
- consent management and data rights
- authentication and identity management
This is pretty well a blue-print for the development of a pensions dashboard and it’s good to know that some of the FCA Open Finance team also sit influential in the Pension Dashboard’s implementation
Open investments and open pensions
The document considers how open finance can help the long-term saver, whether in or outside a pension wrapper.
Here’s the business case for investments
and here’s the business case for pensions
The FCA’s call for input is an impatient document. The document outlines at length the work of the Open Banking Implementation Entity (OBIE) and explains how Open Banking has already
- developed API standards and security protocols
- developed Customer Experience Guidelines for TPPs. These are minimum standards for certain elements of the customer journey which are key to use, adoption and competition
- maintained the Directory – a ‘whitelist’ of participants able to participate in the open banking ecosystem. This is underpinned by the FCA Register, since all TPPs must be FCA regulated
The document also talks of the progress that is being made towards establishing digital identities which will unlock so much of the interoperability of a pensions dashboard
The FCA sees its immediate function as facilitating change and lays out the principles under which it will work
- Developing and agreeing the principles set out below and driving their adoption.
- Supporting and recognising other relevant industry codes of conduct.
- Providing an industry forum to help identify opportunities and risks for open finance.
- Supporting the development of a common API standard.
- Identify regulatory and commercial barriers to open finance through our crosscutting policy work. For example, our evaluation of the Retail Distribution Review and the Financial Advice Market Review is exploring how the market can meet consumer needs for advice and wider forms of financial support. This is likely to be of interest to a wide range of firms wishing to provide new forms of support services.
- Considering its existing regulatory framework and how it currently supports open finance. For example, different sectors have particular rules which will need to be met by all firms which provide financial advice. We would be interested in views as to whether the FCA’s regulatory framework might constrain the development of open finance. •
- Making new rules.