Policy Focused Debate

Introduction

Following the European Commission’ 2020 Digital Finance Strategy, the European Commission published in summer 2023 the Financial Data Access proposal (FIDA). This initiative is a sectoral building block complementing the broader European Data Strategy.

The FIDA proposal aims to create a new framework for the access, sharing and use of customer data across a wide range of financial services. It builds on the revised Payment Services Directive (PSD2) which enabled the licencing of new providers and sharing of payments account data, referred to as “Open Banking”. With the possibility of third-party providers to access customers’ financial data, a new range of products and services were unlocked to the benefit and convenience of consumers. FIDA is seen as the natural evolution of Open Banking, opening up data sharing beyond the payments. In fact, the scope of FIDA is vast and it significantly expands the scope of financial data already subject to data sharing arrangements.

FIDA has a very customer-centric approach putting customers in full control of their data. Upon their permission, customers’ data can be shared with licensed providers allowing for the design and offering of new innovative financial services. FIDA establishes the rights and obligations for data holders and data users to manage customer data sharing across various financial services, including retail credit, insurance and retail investment. The proposal creates an opportunity for the established industry and new market entrants to develop data sharing schemes and innovative and competitive solutions for clients, drawing on existing recognized standards and initiatives.

The potential of FIDA in the EU financial system

Following similar principles, the FIDA process will benefit from experiences from Open Banking and lessons learnt there. PSD2 opened up the payments market by facilitating access to payments data for third-party providers, namely Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). These third-party providers helped consumers to take full advantage of their financial data and supported competition and innovation in payment services. A number of lessons should however be taken into account, namely on ensuring the right incentives for all participants in the ecosystem and harmonization of standards as well as ensuring consumers’ trust and uptake of innovative services and products. Jointly with the FIDA proposal, the European Commission also proposed a revision of the PSD2 and a new payment services regulation (PSR). Open Banking (PSD3/PSR) and Open Finance, will for now remain separate regimes. The European Commission sees however benefits in integrating both regimes at a later stage.

FIDA has the potential to establish a robust framework that ensures interoperability between incumbent and new service providers, promotes standardization, data interoperability and portability and ensures a fair and proportionate compensation model that provides the right incentives to all parties. Consumers are likely to benefit from easier financial access, lower search costs, easier switching, more transparency on costs and accessible personalised advice.

Conclusion and Issues for discussion

FIDA brings a lot of potential for an integrated, data-driven ecosystem in financial services that would benefit consumers. Yet, it also raises certain challenges, such as the very broad scope; the development of financial data sharing schemes and the necessary time needed to do so; the interaction with data sharing initiatives in other sectors and the need to ensure a level playing field, including with FISPs and with actors entering from non-financial sectors; and how to provide a clear framework for permissions dashboards.

Furthermore, as digital finance is constantly evolving, legislation in this area in particular will need to be future-proof and adaptable to evolving technology and emerging business models. For this, it is important that FIDA has in place a sound supervisory structure that takes into consideration cybersecurity and data privacy risks, and incentives for innovation for all parties.

In the ongoing transition for an increasingly digitalised economy, the EU financial sector will have to overcome gaps in the access to finance and existing barriers within the Single Market. The main challenges for the implementation of this new FIDA framework might be related to guaranteeing the trust of consumers in controlling and sharing their financial data, guaranteeing that providers have the appropriate technology for a secure and interoperable sharing of data and developing financial data sharing schemes which meet market demands and avoid misuse of shared data. Harmonized standards and data sharing arrangements with different market participants will also be a fundamental condition to the smooth functioning of a data-driven ecosystem.

Points for discussion:

1. The scope of the proposal is very broad, extending data sharing obligations to mortgage, loans, savings, investment, pension, and insurance data. Is this ‘big bang’ approach to the scope feasible or could the scope of data be narrowed, or a more gradual approach be explored?
2. Does the proposal establish a solid level playing field between all players in the EU financial ecosystem and beyond, particularly with the introduction of the new category of Financial Information Service Providers (FISP)? How will this regulation interact with the horizontal framework set in the Data Act as well as with other sectoral data sharing initiatives? Is there a risk of fragmentation or inconsistencies?
3. Is there a demand among consumers for open finance, and if so, in which area?
4. How could FIDA achieve a fair distribution of value, costs and liabilities between data holders and data users?
5. Are EU consumers sufficiently protected/informed/ and digitally aware of the opportunities and risks of Open Finance?
6. Do the contemplated compensation schemes favour a fair sharing of costs and benefits? Do they favour an added-value or a low-cost data economy?
7. What implementation challenges does the proposal pose and is the implementation timeline of the proposal adequate, particularly in regards to the establishment of data sharing schemes?
8. How do the institutions foresee the interplay between FIDA and Open Banking?
9. Is there any possible link between FIDA and eIDAS?