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Financial Services Law Insights and Observations

Hsu discusses open banking

Bank Regulatory Federal Issues OCC Consumer Finance Open Banking Risk Management

Acting Comptroller of the Currency Michael J. Hsu recently discussed the evolution and impact of open banking during remarks at the Spring FDX Global Summit. Defining open banking as “enabling consumer-permissioned sharing of financial data with third parties to empower consumers, foster competition, and expand financial inclusion,” Hsu explained that, under the concept, consumers may eventually be able to access a wide range of financial service providers and move checking and savings accounts between providers more readily. Hsu cautioned, however, that new risks may arise due to increases in the “volume and complexity of consumer-permissioned sharing.” Hsu highlighted the interconnectedness of open banking, safety and soundness, and the changing culture of banking due to the digitalization of banking and the associated promises of innovation. “The potential for open banking to provide consumers with greater control over their financial data, to increase the portability of banking accounts, and to foster greater competition and fairness in the provision of financial services is significant and may impact banking in a variety of ways,” he said.

Hsu commented that, while the OCC supports opening banking, it is also cautious about potential increases to liquidity, operational, and compliance risks. While account portability “will be empowering for consumers, in isolation this would likely increase the liquidity risk of retail deposits for banks,” Hsu said. Additionally, increasing the volume and complexity of consumer-permissioned sharing has the potential to introduce new risks and necessitate new controls, Hsu said, adding that banks operating as data providers will need to “interact with aggregators, fintechs, technology firms, and competitor banks,” and “expand from reliably handling their customers’ money, to also reliably handling their financial data.” Underscoring the blurred lines between banking and commerce in the digital arena, Hsu emphasized that “[o]pen banking cannot be accomplished by banks alone. Data aggregators and fintechs already play a significant role, which will expand as open banking is more fully adopted.”