Back in March, the Financial Conduct Authority published a document that will have a dramatic effect on how the industry moves forward digitally, requiring providers to invest in new systems capabilities and creating huge opportunities for advisers.
Feedback statement 21/7: Open Finance sets out how the regulator proposes it is made easier for consumers and their advisers to access information on their financial products.
It confirms it will follow the consent arrangements implemented for open banking to facilitate the extension of similar services into all other areas of personal finance.
Open finance will place an obligation on providers to give any organisation with the necessary authorisation from the FCA access to information the customer wishes to share. These organisations are known as trusted third-party providers (TPPs). So far, the FCA has regulated such access via either Account Information or Payment Initiation Services permissions.
The Department for Business, Energy & Industrial Strategy will pass primary legislation to require provider participation in the UK Smart Data project as soon as the parliamentary timetable allows. This means it will only need secondary legislation to compel industries to provide data for other similar services.
This should significantly reduce the time needed to bring open finance services to market. Given the lengthy delays in delivering pension dashboards, anything that makes open finance faster is welcomed.
The paper also confirms that control over who can decide if a third party can access their data will rest with the consumer. This will be a big blow to the Association of British Insurers and several master trusts, which sought to limit adviser access throughout the pension dashboard project.
A further benefit of FS21/7 should be that insurers will no longer be able to treat customers with long-standing contracts as poorly as they do now.
In so many cases, there is no online infrastructure to support information on old plans. It will be important to ensure a duty to support all existing contracts, not just those open for new business, is part of the regulatory requirements.
The open banking consent model being adopted for open finance enables a consumer to grant access to their information via a TPP. The TPP uses a login mechanism for the provider to give consent for it to access that information.
Under current regulations, this consent must be updated quarterly. However, the FCA has indicated this is a constraint on adoption and therefore intends to extend this period. Hopefully, for long-term savings contracts, permission can be granted for several years.
The regulator recognises a phased approach to open finance is preferable to a “big bang” and the first products to be included will likely be those with the greatest synergy with open banking – so, loans, mortgages and other forms of cash savings. Beyond that, it will look to products which have the best balance of cost and complexity of information.
Some in the insurance industry have argued the sector should be the last addressed because of the complexity of the products. But given the digital invisibility of most life insurance products, I think it should be a priority.
It has long been my belief that, had the FCA led the pension dashboard project, a service would have been up and running far more quickly. FS21/7 reinforces my view we will see widespread open finance services live, long before the dashboard is delivered.
Ian McKenna is director at the Financial Technology Research Centre