This is an excerpt from The Future of Risk Management and Compliance 2023 report.

During 2022, European regulators launched consultations into revisions for the Second Payment Services Directive, otherwise known as PSD2. Since coming into effect in 2016, payments have evolved dramatically, and regulators are motivated to understand the impact PSD2 has borne on the industry and how it could potentially be improved to better serve its original aims, and the payments landscape of the future.

The European Work Programme for 2023 states that the Commission aims to publish a draft of its proposals by Q2 of this year, which would be followed by EU co-legislators examining and amending the draft text before it is formally adopted. This third Payment Service Directive (PSD3) is expected to take the form of an industry-wide framework that moves beyond open banking, into open finance, and hopefully into open data further down the line.

In efforts to expand the benefits of open banking to enhance data openness and data access, the European Commission’s ‘Expert Group’ has been tasked with examining matters related to open finance. A report from the Commission states that open finance refers to the sharing, access, and reuse of personal and nonpersonal data for the purposes of providing a wide range of financial services, and that step towards enhanced data openness across and within sectors will increase opportunities for data-driven innovation.

The report lists several key focuses that open finance should seek to achieve, including:

• Customer experience – a broader choice for customers and easier identification of the best options through access to a more tailored and personalised range of services and products; as well as an easier ability to access and use those products;
• Financial inclusion - improving access and use of financial services for all segments of consumers and firms, including SMEs and access for financially excluded people;
• Customer control - giving customers meaningful control over how their data is shared and reused, in line with data protection rules; providing consumers and firms with greater transparency about how their data is used and accessed;
• Innovation - facilitating the interoperability of data in open finance; as well as supporting the development of Artificial Intelligence / Machine Learning models to build services and products for consumers and firms including more accurate prudential risk management.
• Horizontal approach – embed the open finance approach of customer-centric services in a general cross-sectoral framework.

The UK has similarly expressed its plans to review its Open Banking rule, and the Joint Regulatory Oversight Committee, also known as JROC, is expected to publish a final report during the first half of 2023 which proposes its goals and timeline. Comprised of HM Treasury, the CMA, the FCA and the Payment Systems Regulator, JROC will be the body to take Open Banking forward, and is anticipated to lay the groundwork for open finance in the UK.