Open Banking Or Free-For-All? CMA Latest
Like all the best problems, a simple answer demands complex thinking. Open Banking, with its opening up of data paths, seems such a good idea. The difficulty is how to stop it becoming a free-for-all.
The Fintech Times reports on some of the early successes and failures as the mainstream and alternative-finance players seek to realise a glorious future. How to prevent Open Banking becoming a free-for-all? Simple question, with complicated responses.
The Competition and Markets Authority (CMA) has published the findings and recommendations of a review to identify lessons from open banking.
Significant governance failures at the Open Banking Implementation Entity (OBIE) were identified in an independent report which was published in 2021.
Kirstin Baker, a CMA non-executive director, has led a ‘Lessons Learned’ review into specific lessons for the CMA in its approach to designing, implementing and monitoring remedies in future market investigations.
Her review has found that the technical solutions to achieve the open banking remedy have and continue to be successfully implemented. However, the CMA did not fully anticipate the scale and complexity of its remedy and it failed to foresee or manage some of the key risks inherent in the delivery of the project, in particular in relation to governance at the OBIE and relationships with key stakeholders.
The review makes seven recommendations to the CMA:
- Build more effective board oversight and risk management of the end-to-end strategy for complex remedies
- Set out processes and governance for CMA board and executive oversight of the delivery and implementation of remedies
- Consider questions relating to implementation at the remedies design phase
- Ensure key factors are considered where a remedy establishes a new entity or large and enduring CMA function
- Include gateways in the remedy delivery and implementation process
- Implement effective and agile internal governance and stakeholder engagement in remedy delivery and implementation
- Conduct an evaluation case study of complex market investigation remedies
Kirstin Baker, said: “The open banking remedies are some of the most complex ever implemented by the CMA and have been important in opening up competition in retail banking and supporting the growth of UK fintech. Many stakeholders I spoke to for this review underlined that the CMA should continue to be bold and innovative in using its market powers to benefit consumers.”
Historical Performance And IFISA Process Guide
- Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
- Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
- Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
- Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
- Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.