The European Union’s drive to create an integrated financial data market is entering a new phase as Brussels prepares legislation that will require banks, insurers, pension providers, investment firms and other financial institutions to share customer data with third parties – extending rules that have already impacted retail banking.
First implemented in 2018, the Second Payment Services Directive (PSD2) forced banks to share account data with licensed third parties through standardised interfaces, creating a wave of fintechs offering account aggregation and payment initiation services.
Now the European Commission aims to extend this model across the financial sector through the Financial Data Access (FIDA) regulation. First published in draft form in June 2023, FIDA will require financial institutions to make customer data available through application programming interfaces (APIs). The regulation covers amongst others customer data related to credit agreements and accounts (excluding payment accounts), savings, investments in financial instruments, insurance-based investment products, crypto-assets, pan-European personal pension products, and certain non-life insurance products.
The proposed move comes as financial data sharing initiatives continue to gain momentum. Brazil’s central bank mandated open banking in 2021, while Australia’s Consumer Data Right regime has expanded from banking to energy and telecommunications. The UK – which pioneered open banking regulation in 2017 – is developing an open finance framework through the Data Protection and Digital Information Bill.
Representing the first sector-specific implementation of the European Data Strategy published in 2020, which identified 14 industries for data sharing initiatives, FIDA will extend data sharing requirements beyond banks to insurers, asset managers and other financial institutions creating opportunities for fintechs to build new services around customer data.
“Financial services is one of 14 sectors defined in this data strategy,” explains Chris Schmitz, partner at professional services firm EY and the company’s EMEIA fintech leader. “As is often the case, financial services is the first sector to undergo such comprehensive data sharing regulation. While the European Commission supports data sharing efforts across other industries, the financial services industry is clearly leading the way.”
With more than 20 years of advisory experience in financial services, Chris works with start-ups, investors and established clients at positioning the financial services sector within the digital ecosystems of the future.
Chris says the impact on financial services providers will be substantial. “Real time access to data is something that overall the industry has not experienced so far in that broadness,” he says. “Many of the industry players specifically in insurance and asset management are not used to providing customer data to third parties in real time and for sure not over API infrastructures. A substantial amount of Financial Services players may need to upgrade legacy systems to support real-time data sharing via APIs, which could involve significant investment in technology and staff training.
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