Open banking works in the EU and the UK because it has strong, but smart and insightful open banking regulation, surrounding it. These regulations, or simply called - rules, are the key ingredient that allows this concept to flourish and work, even when the markets where it is implemented, are completely different. In this article, we are going to focus on the most important Open Banking Regulation and rules, so you can know how it impacts your life and finance management.
Open Banking in short
Open banking is a concept and implies that an open bank allows third parties to access the payment data of its customers, so it can be used for providing financial services. Ultimately, this should lead to better services and a more open, diverse, strong market.
Open Banking has become possible with the introduction of PSD2 - the 2nd Payment Services Directive. This directive is the most important document in the EU which concerns digital payment and digital banking processes. This directive has supporting regulations and articles in itself, that are in place to ensure fair competition among the open banking service providers who are external to traditional financial service providers, or banks. Open banking also works only with the permission of the account holder, so no one, apart from the client themselves or without their consent, can initiate and carry out any financial action.
Open Banking Rules
The open banking initiative is fiercely protected by strict rules, which are meant to guard against any type of activity that may put the fundamental principles of PSD2 at risk. Open banking rules can be divided into two categories:
- A list of open banking conduct requirements
- A set of open banking compliance mitigation rules
Open Banking Conduct Requirements
Open Banking Conduct Requirements are meant to ensure Open Banking service providers act responsibly. This, in turn, makes the whole concept more attractive for customers and brings greater trust in the initiative among all players of the financial markets. All parties must be transparent about their data sharing with open banking service providers. Also, banks cannot charge extra for providing open banking services and much more.
Open Banking Compliance Mitigation Rules
These rules are meant to enforce compliance and fairness, which is the foundation of open banking. This is especially important to ensure Open Banking services can take root and declare themselves as a reliable part of the financial market. Open banking compliance rules include something like:
●Open Banking service providers must be monitored on a regular basis and at least once every quarter
●Open Banking service providers that fails to meet the necessary requirements, risks facing enforcement actions, such as penalties, license revokement, etc.
Why people trust open banking?
This question might be at the top of everyone's head. It's not that hard to find why people trust it. That's simply because as the EU and the UK have shown us - open banking works.
The rules are protecting service providers by monitoring them regularly, to ensure they comply with conduct requirements and compliance mitigation rules. The EU has identified open banking as a very important initiative that should be protected in a smart way in order for the customer to gain trust in open banking services and for these services to flourish in the future. This is why the rules are strict, market (e.g. consumer) oriented, and focus on enabling innovation without leaving room for exploitation.
And because open banking allows people to get access to better and more tailored services, they get better results and in the end, feel more trust towards the whole concept.
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