Prof. Martins Pereira, it is great to have you with us! You are joining us for an Ernst Mosing Fellowship in Law and Finance from Northeast England, more exactly from Durham University. How did you come across our fellowship programme?
Thank you—it’s great to be here and thank you so much for the warm welcome! Well, around this time last year I applied for research (sabbatical) leave at my home institution – Durham University – and I knew I wanted to spend at least some of it in a higher education institution in the EU. I am currently developing a comparative project on open banking/open finance where I look at the varying approaches taken by different countries to both open banking and the transition into open finance—and I have been particularly interested in comparing the different paths taken by the UK and EU Member States on this journey. At a more granular level, there is remarkable variety in how different jurisdictions within the EU have approached open banking, offering glimpses into what the future EU open finance framework might look like—with important impact in neighbouring jurisdictions like the UK.
Austria has a particularly interesting approach to open banking, so looking for opportunities to conduct further research here was the next logical step. I could not believe my luck when I learned that Graz hosts a yearly research fellowship programme—and I was particularly delighted when Professor Walter Doralt took an interest in my project and agreed to support my application.
You are doing research on the future of banking and finance in both, B2B and B2C. What will Open Banking, Open Finance and later Open Data bring to the table for entrepreneurs and consumers in this area, and what are the key risks that ought to be mitigated with the regulations currently underway?
Open finance is a set of technologies and standards for sharing data in the context of providing financial products and services. It is commonly described as the next step for open banking, which broadly refers to the technologies and standards that, in many countries, already provide consumers and businesses with the tools required to give third-party providers access to banking data and authorisation to initiate payments on their behalf. The transformative potential of open banking is apparent from a simple example. A consumer that has several accounts across multiple banks may struggle to keep track of their financial situation and spending. As a result, they would benefit from access to bank account aggregation services—which are usually provided by small FinTech providers—but such services depend on these providers being able to access the consumer’s banking data, which is traditionally owned by banks. Under an open banking framework, consumers regain control of their data, as banks may become forced to share it instantaneously with authorised third parties.
Open finance—and, in the future, open data—build on existing open banking frameworks: while open banking usually pertains only to personal and SME banking, open finance applies to a much broader range of financial products and services (like pensions and insurance). In the future, it is expected that an open data framework—often referred to as an ‘open everything’ framework—might stretch the boundaries of open banking even further, leading to a world where everyone owns and controls their data and can freely enlist it in the service of their own interests. But for as much potential as these innovations have for putting data-sharing technology to good use, it all hinges on finding regulatory frameworks that address the risks that such innovations also create. Briefly, these risks include: (i) transition costs for smaller players; (ii) a potential decrease in competition (to the extent that lack of reciprocity in data sharing obligations and the search for one-stop shops creates an uneven playing field in favour of third party providers); (iii) access to data by third party entities that escape existing regulatory perimeters; (iv) added financial instability and systemic risk, particularly as unregulated entities are allowed to accumulate market power within existing frameworks; (v) increased threats to consumer privacy due to increased circulation of data; (vi) added risk of financial exclusion due to increases in available data leading to more accurate consumer profiles; and (vii) blinding reliance on consumer consent in circumstances where true consent can be difficult to ensure.
During your stay with us, you are working on a journal article that compares the proposed open finance regimes of EU member states (Austria, Germany) as well as non-EU countries (Switzerland, UK) to distill lessons for the ongoing debate about the respective EU legislation that is currently prepared. Are there any patterns emerging already that you would like to share with us?
During my first weeks in Graz, I put the finishing touches on a soon to be published book chapter that compares the open banking regimes of the UK and the EU and discusses the mutual lessons both jurisdictions can learn from each other as they start their transition into open finance. Briefly, I have found that both the UK and the EU have adopted a fairly similar approach to regulating open banking—namely, a mandatory approach whereby (some) data-holding institutions are mandated to share data with third-party providers. At the same time, important differences lurk beneath the surface—and are set to become more visible as both jurisdictions transition into open finance. This is unsurprising, given both the tensions resulting from Brexit, and the UK’s increasing appetite for international competitiveness. Crucially, any points of divergence already identified should be seen as opportunities for learning as both jurisdictions embark on their individual paths towards open finance. Specifically, the EU should reconsider the initial timeline and process for implementing its open finance framework, namely by setting up an institution like the UK’s open banking Implementation Entity to help in achieving true standardization, and by explicitly embracing reciprocity solutions. At the same time, the UK could only benefit from paying close attention to the latest developments in EU open finance as the EU develops its standardization and mandatory compensation requirements under its new proposal for a regulation on a framework for Financial Data Access (‘FIDA’).
At the moment, I am specifically examining the different approaches to reciprocity in the UK, in a number of EU Member States (including Austria, Germany and the Netherlands) and in other non-EU countries (including Switzerland and Australia). In this context, by the way, reciprocity refers to reciprocal data sharing—and reciprocity obligations (when they exist) require every participant in an open banking/open finance ecosystem to have mechanisms in place for sharing data with the other participants in that ecosystem. In other words, reciprocal open banking/open finance frameworks require everyone—and not just traditional data holders (like banks)—to share data. This can be important for reasons of fairness, but also for reasons of competitiveness, particularly as some of the newcomers into the financial services arena have comparable size to existing incumbents. Now, whereas a few countries (like Australia or Germany) have appeared ready to embrace reciprocity principles, other jurisdictions have resisted including explicit reciprocity obligations in their open banking/finance frameworks. The EU, in particular, seems set on relying on the General Data Protection Regulation and the Digital Markets Act to create a semblance of reciprocity, but fails to achieve truly reciprocal data sharing within its open banking framework (or upcoming open finance framework). The UK is still sitting on the fence: its current open banking framework does not embrace reciprocity, but the country’s Financial Conduct Authority has recently stated that a new open finance framework would probably flourish better if data was shared on a reciprocal basis—so watch this space!
For our readers who would like to know more about the points you have raised, and I am sure that there are many: Is there a chance to hear you speak about these topics during your stay here, or alternatively online?
Definitely! At this point, I have already given a guest lecture at REWI Uni Graz as part of its Doctoral Colloquium within the PhD Program on European Private Law, and it was a wonderful opportunity to present some of these preliminary findings. I am grateful for the many thoughtful questions and comments received from the audience, and I am particularly indebted to Professor Gregor Christandl for organizing, and to Professor Walter Doralt for his support. That being said, I am always very happy to discuss open banking/open finance with anyone who wants to stop by my provisional office in D4 (053)—and I hope I’ll get other chances to discuss my findings with students, colleagues and friends before my time here comes to an end.
Having spent some time here in Graz already, what surprised you most about the city?
Where to begin? You have a beautiful city! I could spend more time on this question than on any other, but, for the sake of brevity, I will give you my top three surprises: the view from atop the Schlossberg, the taste of Sturm wine (and how well it pairs with schnitzel), and the dancing figurines that greeted me at Glockenspielplatz as I wandered by on a sunny Saturday.