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The Intergovernmental Fintech Working Group (IFWG) has published a new blog on Open Finance, noting that South African regulatory authorities have started looking at open finance as it relates to their respective mandates.
What is open finance? The premise of “open finance” is to give customers the ability to access and share their own financial data with third parties instead of having to work through banks and other credit providers. The “open finance” concept assumes that customer interests are best served by allowing customers the ability to control, access and share their financial data. Third party providers granted access to such data would then be able to collate and analyse the data, in order to develop and offer the customer financial services specific to their needs, and also to encourage more competition in the financial services market.
What are the benefits of open finance?
There are various benefits associated with open finance. These include allowing customers access to a wider range of financial products and services, greater control over their data, and the ability to engage with their finances and empower better financial decisions. Open finance is said to bring with it the potential for access to cheaper and more holistic financial services.
The SA regulatory landscape
There is no current legislation that deals specifically with “open finance”. There are, however, various pieces of existing legislation which may have a bearing on an “open finance” system and the parties (developers, product suppliers etc) involved. These include:
- The Protection of Personal Information Act, 2013, (POPIA) applies to the processing of personal information. Financial information is regarded as personal information under POPIA and any processing (collection, dissemination, use, retention and destruction) of such information must be carried out in accordance with prescribed requirements. Any person handling financial data in the context of open finance would need to ensure compliance with POPIA
- Depending on the specifics of the “open finance” services being offered, consideration would have to be given to the requirements of the Banks Act, 1990, the National Credit Act, 2005, the Co-operative Banks Act, 2007, the Mutual Banks Act, 1993, National Payment System Act, 1998 the Financial Sector Regulation Act, 2017 and the Financial Advisory and Intermediary Services Act, 2002 (collectively Financial Services Legislation). The Financial Services Legislation currently applies to the banking and financial services sectors, and imposes both compliance and licensing requirements – many of which are likely to need amendment in-order to cover open finance.
- The NPS Act has been earmarked for review. In a 2018 policy paper, the South African Reserve Bank identified that one of the key drivers for the review of the act is the emergence of new payment systems and functionalities (including open finance) that operate in an unregulated domain and as an alternative to regulated systems.
Regulatory developments
The IFWG has established the Open Finance Integration Working Group as a collective of different regulators who collaborate on work to build a better understanding of open finance and gather insights to inform how to shape the potential regulatory framework for open finance.
What are the risks associated with open finance?
The IFWG summarises the key risks associated with open finance to include: data privacy and security; operational risks; costs of implementation, and potential exclusion of customers with no digital access. You can add to that the need to protect customers from bad advice from third party providers.
Concluding statements
Although open finance presents several opportunities to advance the digital development of the financial sector and benefit the financial wellbeing of consumers, the IFWG notes, and we agree, that the success of such initiatives will depend on an appropriate understanding of, and the ability to mitigate, the potential risks that open finance may pose. The complexities introduced by open finance cannot be ignored, and must be managed in a manner that champions the benefits of open finance but is also safe for consumers and the broader financial system.
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