The European Commission project for Open Finance
In 2020, the Commission identified the promotion of data-driven finance as one of the priorities of its digital finance strategy. On 25 November 2021, the Commission proposed legislative proposals on the Single European Access Point (ESAP) as part of the Capital Markets Union (CMU) package. The goal of this proposal is to consolidate online access to financial and sustainability data of companies and financial institutions in a single interface.
Open finance refers to the access of third-party service providers to consumer and business data relating to financial sector intermediaries and other data holders, in order to provide a wide range of financial and information services. At the moment, third-party service providers have to rely on limited sources of access rights to customer data in the financial sector: the Payment Services Directive (PSD2) with regards to retail customer payment account data and businesses, as well as the General Data Protection Regulation (GDPR) regarding personal data held by any financial service providers.
The measures that the European Commission aims to introduce will lead to greater competitiveness, simplification of data analysis and better choices. All companies should be involved, so as to have a real level playing field, with basic data available for everyone. This option would also allow a kind of emancipation of the client who would make more informed choices. If only some companies were to make the data available to third parties, the information would be biased, with increased risks and possible cartels between the dominant companies.
Open finance can bring innovative and affordable tools to consumers and businesses. Easier access to big data facilitates the development of new data services. Data-driven finance could also facilitate the financial industry in customised solutions for clients.
In finance and beyond, there is a broad technology-driven trend towards greater use of data and data sharing. The needs highlighted by the European Commission include several cross-cutting policy initiatives:
- Common European data spaces in various sectors of the economy
- Data sharing between businesses and governments
- Sharing of industrial data across sectors
In order to promote the ambitious data strategy across the economy, in 2020 the Commission proposed a Data Governance Act (DGA), a Digital Services Act (DSA) and a Digital Markets Act (DMA). These initiatives, among other things, provide a coherent governance framework for the common European data spaces, establish rules for data intermediaries and other online intermediaries, as well as establish obligations for online gatekeeper platforms.
Furthermore, in 2022 the Commission proposed a Data Act, containing further policy measures as regards access to the Internet of things (IoT) data as well as general modalities for data access and reuse across the economy.
In 2021, the Commission established an expert group on European financial data space to continue its engagement with stakeholders in this priority area, which created a dedicated subgroup on open finance in 2022. Open finance should form an integral part of the European financial data space, along with data contained in public disclosures of firms as well as supervisory data.
However, it is necessary to specify that open finance architecture should guarantee the protection of the personal data of the subjects and the right to be forgotten, avoiding the dissemination of information which may constitute a prejudicial precedent to the honour of a person. It is also necessary to provide for the usability of data only after a specific authorisation by the competent authorities, in order to ensure maximum protection for the consumer and for all those involved in the value chain.
Data-driven finance requires the use of different sets of data, including public and private data, as well as personal and non-personal data. This not only requires a combination of differentiated policy approaches in building the European financial data space, but also requires consistency with cross-sectoral legislative frameworks.
Relevant personal data includes financial data, for example regarding savings, mortgages, consumer credit, investments, pensions and insurance.
Non-financial data may also be useful, including data from online platforms (for example, social media, e-commerce and streaming), public entities (for example, tax and social services), utilities (e.g. water and energy), telecommunications, retail purchases, mobility (e.g. ticket purchases), environmental data and Internet of Things (IoT) data. Relevant non-personal data includes business register data and high-value data sets that must be shared under the Open Data Directive.
Regarding the financial advising sector, a potential use case could be to allow access to client information collected in the context of the suitability and appropriateness assessment, as well as access to client investment data (e.g., securities accounts, pensions, etc.). As part of its retail investment strategy under the Capital Markets Union Action Plan, the Commission is considering how to improve the suitability and appropriateness assessment to help retail investors better achieve their investment objectives.
The ability to share data between financial intermediaries with the client's consent could be an important element of the client-centric and portfolio-centric investment approach. This would have two aspects: the rules on customer profile portability would ensure that information can be seamlessly transferred from the customer to another financial intermediary which could facilitate the adoption of new customized and customer-centric approaches to help them better manage their own investments or to facilitate the transition from one intermediary to another or the use of several financial intermediaries.
Second, to enable further innovation and to support an adequate offering of products for the benefit of retail investors, it is necessary for financial intermediaries to have access to data on investment products that their clients already own (including securities accounts, life insurance and accounts, life insurance and pension products).
Similarly, to the case of investments, that of financing for small and medium enterprises (SMEs) is made up of two aspects. First, SMEs often have difficulty accessing credit and are exposed to higher transaction costs and risk premiums than large companies. Lenders often do not have enough information to properly assess the creditworthiness of SMEs, assess credit risk and personalize financial products. Collecting primary data from SMEs during the loan application process is expensive and may not provide all relevant data. To make sure that the loans disbursed are adequate for the economic and financial situation of SMEs, credit institutions and other lenders could benefit from additional access to data, including those related to e-commerce. Secondly, the principles of open finance could also be applied to the sharing of data relating to SME loan applications among lenders, which is one of the actions foreseen in the Capital Markets Union Action Plan.
By facilitating the sharing of standardised data on SMEs with finance providers, it would help SMEs to obtain finance and, at the same time, help lenders to find new customers/investments.