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New EU open finance regulations: opportunities and challenges for the financial sector – Fintech Schweiz Digital Finance News
per Fintechnews Switzerland
June 10, 2024
New regulations in the European Union (EU) regarding payments and access to financial data are laying the foundation for open finance.
While these initiatives aim to promote innovation and improve customer experiences in the financial services sector, they can also pose complex and costly implementation challenges for the sector, according to a note from the Institute of International Finance (IIF) released on May 22. 2024.
The note, released on May 22, examines recent regulatory changes to the EU data sharing landscape, focusing on the impact of new open finance rules on financial institutions.
Innovation in payments and fraud prevention
PSD3 and PSR are intended to replace and modernize the current Payment Services Directive or PSD2. Its objectives include combating fraud, strengthening customer rights, improving access to bank accounts for non-bank actors and, ultimately, facilitating open finance.
The European Parliament voted in favor of PSD3 and PSR on April 23, 2024, marking a significant step in defining the future of open finance in the EU. It proposed several changes to the texts, mainly to improve fraud prevention. These changes include:
- Strengthen consumer protection in a context of expanding fraudulent activity;
- Promote innovation through new payment services, risk-based strong customer authentication (SCA) and interoperability;
- Increase transparency and user control over data sharing;
- Improve fraud data sharing through a dedicated IT platform overseen by the European Banking Authority (EBA); It is
- Clarify the scope of regulations relating to e-money tokens, location-based discrimination and direct debit refunds.
The EBA responded just days after Parliament’s vote, formulating on 29 April 2024 specific suggestions for further amendments to the PSD3 and PSR texts, such as requiring two different SCA factors, requiring comprehensive fraud risk management frameworks and guaranteeing pre-execution monitoring of instant payments.
Finalized versions of PSD3 and PSR are now expected in late 2024, with potential implementation around 2026, wait Sia Partners, a consulting firm.
Giving customers more control over their data
FIDA, in turn, aims to establish clear rights and obligations to manage customer data sharing in the financial sector, giving customers control over their data and allowing third parties access to a wide range of financial information. This includes data on mortgages, loans, savings, investments, insurance, pensions and creditworthiness assessments.
FIDA’s proposals include requirements for financial institutions to provide data access to other institutions or fintech companies, subject to customer permission. Customers will have full control over who accesses their data and for what purpose, increasing trust in data sharing. Furthermore, data subjects and users will have to adhere to Financial Data Sharing Schemes (FDSS), which will govern access to data in accordance with FIDA and other EU regulations.
FIDA was voted into the European Parliament’s Committee on Economic and Monetary Affairs on April 18, 2024. However, industry experts do not wait FIDA will be finalized before 2025.
Impact on financial institutions
According to the IIF, PSD3, PSR and FIDA present opportunities for the financial services industry to collaborate with new players in the ecosystem to develop innovative, value-added products and services and improve customer experiences.
However, the trade association highlights the significant challenges that financial institutions may face in implementing these challenges. In particular, it notes that meeting real-time data sharing requirements under FIDA may prove technically challenging and costly for data holders.
Furthermore, industry stakeholders remain skeptical about the expected benefits of the new regulations. A 2023 EC survey examined the application and impact of PSD2, and concluded that the costs of implementing PSD2, especially for API development (estimated at €3.2 billion) and SCA implementation (estimated at ~€5 billion, were An overwhelming majority of banks and associations consulted for the study suggested that these costs largely outweigh the benefits to them.
Featured image credit: edited on freepik
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