Open finance is a seismic movement in the financial sector, which builds upon the foundations of open banking. It’s designed to empower consumers and businesses with greater control over their financial data, fostering innovation and enhancing the quality of financial products and services. This concept revolves around financial institutions sharing data with third-party providers via open APIs, allowing for more informed choices in financial services. This blog will cover the key proposals, preparations and challenges associated with its introduction, particularly regarding digital infrastructure.

Key aspects of the FFDA

The FFDA, a proposed EU regulation, is set to standardise open finance across Europe. It mandates financial institutions to share data following a consumer or business request, facilitating easier comparison and switching of financial services, alongside fostering new product development. 

In a similar move, the UK government has announced that it will be implementing open finance in the UK. In November 2023 it tabled an amendment to the Data Protection and Digital Information Bill, which will allow regulators to create a Smart Data Scheme for financial services and provide for the secure and consented sharing of customer data with authorised third-party providers. 

This means that UK consumers and businesses will have similar rights to access and share their financial data as EU consumers and businesses.

There are a number of FFDA proposals, and some of the key points include: 

Data sharing mandate: Financial institutions must share data with authorised third parties in real-time upon customer request.

Data categories: The regulation covers a wide range of financial data, including loans, investments, crypto-assets, and insurance products.

Operational standards: Institutions must adhere to common data-sharing standards and join regulated financial data-sharing schemes.

Charges for data sharing: Institutions can levy charges for data sharing, regulated by specific schemes.

The UK’s response

The UK closely monitors the FFDA while developing its own ‘smart data’ framework. This includes a focus on expanding open finance to sectors like energy and telecoms, and its approach is guided by the Smart Data Council, aiming to maintain competitiveness in the fintech sector.

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The challenges and opportunities ahead

The transition to open finance offers opportunities for innovative financial products but requires robust digital infrastructure, and organisations will need to accelerate their digital transformation strategies to cope with the demands of open finance. This includes enhancements to: 

Legacy systems: Financial institutions must overcome the limitations of legacy systems and consider cloud adoption

Connectivity and data centres: Upgrading digital infrastructure for efficient data movement will be a necessity

Security: Ensuring data safety and accuracy is paramount, and advanced security solutions will be needed alongside effective data sovereignty measures to meet regulatory requirements.

Seizing the opportunity

Open finance offers a great opportunity to access a range of benefits, such as new financial services to enhance consumer choice. But having the right infrastructure will be critical. Legacy on-premise systems, backed by insufficient connectivity, will be incapable of meeting the challenge as open finance scales up. 

The financial services sector must embrace the right partnerships to confidently move forward post-FFDA introduction. Telehouse can provide the hyper-connectivity, security, scalability and experience to facilitate the transition and sustain future developments, enabling firms to remain competitive and drive revenue. All the necessary resources and knowledge can provide the blueprint for success in the era of open finance.

Find out more about overcoming the challenges and making the most of the opportunities presented by the FFDA in our latest eBook, or get in touch with Telehouse to find out more.

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