Codifying the attributes that standard-setting organizations must demonstrate to be recognized under a proposed, final “open banking” rule would be accomplished before the final rule is issued, likely this fall, the head of the federal consumer financial protection agency said Thursday.
Speaking at the Financial Data Exchange Global Summit in Washington, D.C. Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra said that, after the attributes are codified, the agency will invite standard-setting organizations to begin the process of seeking formal recognition from the CFPB.
“This will help us recognize standard setters as quickly as possible, which should help facilitate compliance,” Chopra said. He added that the agency plans to do this as soon as is practicable, before CFPB finalizes the proposed Personal Financial Data Rights rule the “open banking” rule.
The proposed rule, issued by the bureau in October, would ostensibly provide consumers with control over data about their financial lives and “would gain new protections against companies misusing their data,” CFPB said then.
The agency said the proposal would “ “challenge the financial services industry to compete for customers, protect consumers from excessive surveillance, and help people walk away from bad service.”
In its notice of proposed rulemaking last fall, CFPB said the proposal would require depository and nondepository entities to make available to consumers and authorized third parties certain data relating to consumers’ transactions and accounts.
The agency also said the proposal would also establish obligations for third parties accessing a consumer’s data, including privacy protections for that data, provide basic standards for data access, and promote “fair, open, and inclusive industry standards.”
On Thursday, Chopra indicated that, based on the formal feedback the bureau received in the comments process, he expected the final rule this fall would identify areas where standards are relevant to the requirements of the final rule.
“The attributes we are considering for standard-setting organizations will not be a surprise to those who read our proposal,” he said. “For example, we are considering whether standard-setting organizations should be balanced, such that no single entity or group of entities dominates decision making.”
The CFPB director said the agency will “look closely” at the makeup of the board or group that makes determinations with respect to the setting or modification of standards. “We’ll be looking at your funding structure,” he said. “If the composition suggests favoritism or if funding is dominated by one market participant, that will be a problem.”
He also said that if there is no meaningful way for consumer privacy interests or the interests of small firms to be considered, that could also be a problem. “I urge all interested standard setters in this space to look hard at their practices and procedures to ensure your organization is not simply a puppet for a powerful player,” he said.
To that end, he said, recognition as a standard setter could be revoked. “In terms of the process for maintaining recognition, we want to ensure that there are no bait-and-switches or any other mischief,” Chopra vowed. “I expect that CFPB recognition might be revocable or time-limited under certain circumstances.”
Chopra said the agency would like eventually to recognize more than one standard to allow the market to develop without complete reliance on one set of protocols. “I also recognize that not every standard setter might be ideally suited to create standards for every part of the open banking system, and new standard-setting organizations may need to emerge as the system evolves,” he said.
Existing standard setters should not take their place in the market for granted, he said. The agency’s “strong preference” remains for market-driven standards, but he said the agency “will not be able to rely on such standards if they are structured to allow incumbents to maintain their market power to the detriment of open banking in the United States.”
It standard-setting organizations cannot be identified, he said, the bureau will be prepared to step in with more detailed guidance.
“But we think the industry should be prepared to think critically about these issues now, to stand ready to engage with us, and to prepare for applying for recognition even before the main rule is finalized this fall,” he said.
Prepared Remarks of CFPB Director Rohit Chopra at the Financial Data Exchange Global Summit