“Open banking” – the practice of enabling consumer-permissioned sharing of financial data with third parties to empower consumers – is supported by the regulator of national banks, but not at the expense of dissolving banking’s traditional culture of trust, the agency’s leader said Wednesday.
In remarks to a conference sponsored by Financial Data Exchange (FDX), Acting Comptroller of the Currency Michael Hsu said open banking’s promise of greater innovation, efficiency, and competition “will rely to a great extent on a richer and more complex financial ecosystem.”
He said banks as data providers will need to interact with aggregators, fintechs, technology firms, and competitor banks. “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 defined “open banking” as enabling consumer-permissioned sharing of financial data with third parties to empower consumers, foster competition, and expand financial inclusion. He said the Office of the Comptroller of the Currency (OCC) supports those objectives.
He also noted that open banking frameworks vary across individual jurisdictions around the globe, but generally address similar issues such as 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.
He said his agency’s third-party risk management expectations provide a foundation for banks to assess those relationships. But some evolution and refinement of those expectations may be needed as open banking and the fintech landscape evolve, he said.
Hsu also warned of an overreliance on data. “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.
The acting comptroller leveled a sharp warning on 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,” he 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.”
Finally, Hsu drew a comparison between the tech culture of disruption and moving quickly to the traditional culture in banking of trust. Trust, he said, “cannot be engineered or manufactured or bought. It must be earned, carefully maintained, and vigorously protected. An open banking culture that recognizes that and puts trust above other objectives, including growth and profit, will succeed and thrive over time,” he said.