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UK Open Banking changes you need to be aware of

The reality of Brexit has seen wide-ranging transformations across a diverse range of industries both in the UK and the EU. The financial sector is certainly one of the most impacted industries and Open Banking is not immune to such changes.

UK Open Banking changes you need to be aware of
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  • Jon Martingale
  • May 20, 2021
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With the UK’s departure from the EU comes changes to the way Open Banking will operate. We are also looking at increased adoption of Open Banking among UK banking customers and the uptick of new and improved software solutions, which are making use of the increased access to banking data.

What is Open Banking – a reminder

Open Banking is an initiative that was launched in 2017 to streamline and enable the communication of real-time financial data between banks, customers, and trusted third parties.

These trusted third parties, who need consent from banking clients and customers, will include software providers alongside the bookkeeping and accounting community. This spurs the need for all advisers to thoroughly research and understand the emerging initiative.

How Open Banking will impact bookkeepers and accountants

Not only could accountants and bookkeepers potentially become the trusted recipient of rich and real-time banking and financial data from their clients, but they will also have to navigate and advise upon the increasing pool of financial products and services that will emerge.

This puts accountants and bookkeepers in a unique and potentially powerful position. They are now both direct recipients of Open Banking data and advisers in the way businesses and individuals use third party fintech solutions.

Open Banking and accounting software

How accounting applications work with bank data is something that has already begun to evolve under Open Banking.

IFA members will start to see an increasing number of accounting apps utilising the Open Banking connection. This will allow for more overview of financial information and more direct connections to customer’s accounts.

Accountants should be keeping abreast of these changes as it is likely to impact the way you interact with clients, give advice and work with accounting software products.

Read more about the impact Open Banking will have on UK Bookkeepers, accountants and advisors.

Changes to Open Banking all IFA members need to be aware of

What’s changed with UK’s specific approach to Open Banking? Put bluntly – Brexit.

Now that the UK’s departure from EU has been formalised, how does this change the UK’s approach to Open Banking?

According to Business Insider UK:

“Since the UK left the EU on January 1, 2021, the country is no longer bound by the PSD2, meaning it will now chart its own open banking course separate from the rest of the EU.”

For the unaware, PSD2 is the EU version of Open Banking. It has specific regulations for electronic payment which seeks to implement more secure and innovative banking services.

What does this mean for UK banking customers and how will it change the Open Banking approach the UK takes?

Now it’s a ‘wait and see’ situation. We can, however, make a few reasonable assumptions.

For UK banks, fintechs and businesses to remain competitive in the European markets, it makes sense that PSD2 will remain a key mechanism for the UK financial services industry.

To remain a competitive business leader the UK will need to comply with EU regulations, including PSD2.

Digital certificates

One interesting area you should be monitoring for developments relates to digital certificates.

PSD2 mandates the use of qualified digital certificates when using Open Banking. How this will change in the UK is currently unclear and several proposals are being considered.

One train of thought is that all PSD2 certificates issued to UK organisations should be revoked.

The other train of thought is that the UK will continue using PSD2 certificates to compete in European markets while allowing alternative, domestically articulated digital certificates for UK entities.

All businesses in this space, alongside bookkeepers and accountants, should be watching these developments closely to see where the chips will fall, as this will affect the uptake and use of Open Banking in the UK rather significantly.

How has COVID-19 impacted Open Banking in the UK?

There was an extremely robust uptick in the use and adoption of Open Banking since the start of the pandemic.

Open Banking allows for trusted third parties to connect to a client’s banking services and there is already a growing cohort of fintech providers and application developers who have capitalised on this and launched successful products which are being adopted quickly.

New developments in UK Open Banking adoption:

  • As of January 2021, there were over 2.5 million UK bank customers connecting to third parties (facilitated by Open Banking);
  • This is up from only 1 million in January 2020; and
  • This boost in using Open Banking services is likely due to the increasing adoption of various fintech solutions, such as bank feeds in apps like IFA Books+ and money management apps, fuelled by amplified financial concerns brought about by COVID-19.

With the increasing engagement with third-party fintech solutions by SMEs and individuals, the onus of understanding these aspects of consumer finance will come down to bookkeepers, accountants and advisers, whose advice and client work will be affected by the emergence of Open Banking enabled consumer solutions.

Jon Martingale, senior manager - Reckon One Limited

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