Banks are under pressure to stump up millions of pounds in interim funding for the organisation that polices open banking, with regulators saying the new money is needed to prevent financial crime and protect consumers if things “go wrong”.
Large banks including NatWest, HSBC, Lloyds and Santander UK were among more than 40 City firms summoned by the Financial Conduct Authority (FCA) last week to discuss a cash injection into Open Banking Limited (OBL), the body that oversees innovation in this area.
The Treasury and regulator are seeking £10m in total but want nearly a third of that sum as soon as 1 April 2024.
Attendees, which included high street lenders, digital banks and payment providers, have been given just over a week to consider the proposals, which will extend the life of OBL, while they wait for legislation to create a new entity to supervise the sector.
Launched in 2018, open banking set out to end the dominance of the UK’s biggest lenders. It meant individuals could share their personal financial information with startups and fintech firms to gain access to better deals on products such as mortgages, overdrafts and loans, usually through apps. However, it also came with the health warning that users could be susceptible to data breaches and scams.
A letter sent out to chief executives days before the Thursday meeting said each firm was expected to contribute about £70,000 to £100,000 each, which suggests they hope about 30 firms will stump up the cash.
Regulators said the funds would support the supervisor’s work, mitigate the risks of fraud and financial crime, and ensure effective consumer protection if things “go wrong”.
The regulators warned that a lack of funding “would delay further the progress of open banking within the UK. We do see real benefits from open banking, and are hugely excited by the possibilities it holds – we want to realise them as soon as we can for the benefit of all,” the letter, seen by the Guardian, said.
Larger banks are relieved that their smaller counterparts are being asked to fund the body, given that just nine lenders were previously footing the bill for the entire operation, three sources said.
“There’s not much time to go since they want funding to start in April, and we don’t know who will agree and how that will go,” one source said. “But we’re happy they’re widening the net.”
The previous sole funders were Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, Natwest Group and Santander UK.
The FCA said: “We had a positive and constructive meeting today and will continue to work with the industry. The FCA is committed to the future of Open Banking, and we will set out the next steps in April.”
