OBL, Innovate Finance issue responses to JROC’s Future Entity design proposals

Open Banking Limited (OBL) and Innovate Finance have published their respective responses to the Joint Regulatory Oversight Committee’s (JROC’s) proposed design of the Future Entity for UK Open Banking, with concerns highlighted by both regarding the Interim Entity’s governance and timeline.

In its response to the consultation, the independent industry body representing the UK’s fintech sector Innovate Finance has raised concerns about the proposed approach towards setting up an interim entity and the “associated costs and potential delays” this could cause.

Innovate Finance states: “We remain to be convinced that a separate legal entity is strictly necessary. Unless there are legal reasons for this, it creates unnecessary additional cost and delay, with a delay in set up whilst a new board and CEO are appointed and additional costs (which industry has to pay for) of duplicate governance and leadership roles.”

JROC has recommended that an ‘Interim Entity’ is created as a subsidiary of OBL to oversee non-Order work and anticipates that the Interim Entity will be needed for “at least 18 months”, from August 2024 to December 2025, until January 2026 when the new Future Entity will take effect.

Innovate Finance said it is “not convinced” by JROC’s proposals to introduce an interim board consisting of TPP, PSP, ASPSPs and PISP representation.

It added that this “goes counter to the industry Future Entity working group which recommended an independent board, based on principles of the UK corporate governance code, with directors and board members selected for their skills and not as representatives of different stakeholder groups”.

Open Banking Limited’s response

In its response to the design consultation, OBL has proposed seven “practical enhancements” that it believes will facilitate “the timely establishment of the Interim Entity, improve its operational effectiveness, reduce delivery risk and result in better co-ordinated outcomes”.

OBL confirmed that having already made progress on the JROC workstreams, that this “momentum… is maintained” while the Interim Entity is being established, with OBL continuing to “take forward” the workstreams and then handing these to the Interim Entity once formed.

It also acknowledged the need to “separate the funding and governance of Order and non-Order related activities in the period ahead of the workstream ownership being passed to the Interim Entity” and has proposed mechanisms to ringfence funds.

OBL said it remained concerned that duplication of management, leadership and roles and responsibilities for OBL and the Interim Entity has the potential to “create confusion and complexity” for employees and stakeholders alike.

One enhancement proposed by OBL is the discharging of its corporate governance obligations in relation to the Interim Entity, with the OBL chair and chief executive officer having “observer status” on the entity’s board, for example.

It has called for clarification of the Interim Entity chief executive officer role and questioned the value of creating such a role, adding it is OBL’s view that “the principle of cost optimisation and value for money… should be applied to the establishment of the Interim Entity to ensure that the voluntary funding obligations on industry are minimised so far as possible”.

“Fundamentally, OBL sees establishing the Future Entity as quickly as possible being critical,” it stated.

Marion King, chair and trustee of Open Banking Limited said: “Both OBL and the Interim Entity have a crucial role to play in building on the success that Open Banking has achieved to date.

“We fully support the commitment to establishing a Future Entity and believe this will be critical to the ongoing success of Open Banking in the UK. OBL welcomes the opportunity to contribute to the design of both the Interim and Future Entities and is happy to engage with JROC to assist with this.”

Funding model

Innovate Finance also questioned JROC’s preliminary recommendation to establish a funding model which “shares the fixed costs of the Future Entity equitably across ASPSPs and TPPs using a tiered model”.

“It is vital that any funding model does not lead to barriers to entry or create circumstances that inhibit the ability of fast growing but yet to be profitable businesses,” Innovate Finance has said.

“Previously we have argued that membership funding should be tiered, with clear thresholds for the contribution levels, and encompass a more significant contribution from large ASPSPs as the data holders.”