CFPB issues rule to recognise Open Banking standard setters

The Consumer Financial Protection Bureau (CFPB) has outlined the attributes required to become a recognised Open Banking standard-setting body in the US, to help stop incumbents from “squelching” startups.

The new rule finalised by the CFPB means those organisations that become recognised standard setters can issue standards that companies can use to help them comply with the regulator’s upcoming Personal Financial Data Rights Rule.

“Industry standards can be weaponized by dominant firms in order to maintain their market position, undermining competition for all,” said CFPB director Rohit Chopra.

“Today’s rule will prevent these firms from rigging standards in their favor by identifying attributes the CFPB will use to recognize standard setters.”

In October 2023, the CFPB proposed a rule to implement personal financial data rights for consumers which it intends to finalise in the coming months, as part of its work to accelerate the shift to Open Banking in the US.

Under the new Personal Financial Data Rights Rule, the regulator expects to allow companies to use technical standards developed by standard-setting organisations which it has recognised.

Standard-setting organisations will be required to seek formal recognition from the CFPB, which has issued a guide on how to apply and what it will be evaluating in the applications it receives.

Companies will need to demonstrate several attributes to obtain recognition, including openness, transparency, balanced decision-making, consensus, and due process and appeals.

Under its definition of ‘openness’, the CFPB said that it will not recognise any standard-setting organization that is “rigged in favor of any set of industry players”.

“The process must be open to all interested parties, including public interest groups, app developers, and a broad range of financial firms with a stake in Open Banking,” it stated.

The CFPB will have a “mechanism” to be able to revoke recognition of standard setters.

After a period of five years, standard setters will need to reapply for “re-recognition”.

Industry reaction

In a post on LinkedIn, FDATA North America wrote: “We commend the CFPB for the detailed attributes laid out in this final rule, emphasizing the importance of balance, transparency, consensus, and due process. This framework ensures that organizations setting technical standards will support the delivery of third-party financial services, products, and tools to enhance consumer financial wellbeing.

“Additionally, the timing of this rule allows standard-setting bodies to get accredited before the completion of the Section 1033 rule, accelerating the move towards compliance with the Bureau’s Open Banking regulations.”