How the Future Entity can support the prosperity of open banking

What is the “Future Entity”?

As part of the Retail Banking Market Investigation Order 2017 (the CMA Order), the nine largest UK banks and building societies (known as the “CMA9”) were required to set up and fund a central standard setting body for open banking. This body is known as the “Implementation Entity” and was established as Open Banking Limited (OBL). 

However, as we progress to the next phase of open banking, this current structure is set to be replaced by the “Future Entity” i.e. the body that will govern open banking in the future. In April 2024 the Joint Regulatory Oversight Committee (JROC) released a consultation paper which set out their proposals for the design of this Future Entity. 

Why is the Future Entity important?

The Future Entity will be at the heart of the open banking ecosystem. It will have a number of responsibilities including improving existing and developing new API standards and guidelines, monitoring standards, gathering data, providing critical services (e.g. directory and help desk) and ensuring there are mechanism in place to protect consumers and businesses. Getting the structure of the Future Entity right, in particular its functions and governance, will be key to open banking achieving its potential in the future.

What is the industry position on the Future Entity?

UK Finance responded to the JROC consultation. Our key messages include:

  • The CMA order should be revoked.
  • JROC should be to deliver a streamlined and cost-effective standards body designed to deliver today’s requirements.
  • Funding should be on a fair and equitable basis, based on a methodology that addresses the complexity of business models in the ecosystem.
  • The Future Entity should be based on a commercially sustainable model, which includes providing value for money, support a competitive and innovative market that responds to consumers’ and merchants’ needs, and creates value for all participants in the value chain.
  • The pathway to the Future Entity should be as quick, streamlined, and efficient as possible.

Where does open finance fit into this?

Open finance and open banking are sometimes considered interchangeably, but this is a misunderstanding. Open finance is in essence the extension of the principles of open banking into other sectors, for example, mortgages, pensions, investments and savings. While we agree with the principle that the Future Entity “needs to be scalable for open finance scenarios”, our position is that open finance must not be considered as one with open banking, and it is not for the banking and finance industries to decide governance or funding for other markets. 

What next?

JROC is proposing that Open Banking Limited is replaced by an “Interim Entity” (of which Open Banking Limited will be the “parent”) this August, which will then be replaced by the Future Entity in January 2026, by which time the Long Term Regulatory Framework will be in place. UK Finance will continue to work with its members and other key stakeholders to achieve our member objectives and support the future prosperity of open banking.