They say a chain is only as strong as its weakest link. Extending that logic a bit, it follows that open banking, underpinned by data, is only as reliable as the data itself. To that end, some red flags over data practices have just been raised in the U.K., which is the epicenter of open banking.
Earlier in the month, the Bank of England’s Prudential Regulation Authority said it found that a number of banks and building societies (financial institutions that are in turn owned by their members) have not been delivering reliable data reports to regulators – which means the monitoring of risk in the financial system is not as accurate or timely as it might otherwise be.
“The integrity of regulatory reporting is essential for us to advance our primary objective to promote the safety and soundness of PRA-authorized firms,” the BoE said in the letter. The reports from the FIs are centered on assets, operations and capital.
‘Material Misstatements’
“The findings of our work demonstrated that there is an increased risk of material misstatements from firms that did not meet our expectations,” said the letter. In at least some instances, according to the document, workflow and oversight remain fragmented and less than optimal. Oversight and risk monitoring activities and accountability have been spread out among far-flung individuals and teams, “and delegated too far down the organization.” End-to-end processes have been fragmented, and there remains a “poor understanding” of those processes at these firms.
“Our review highlighted that many firms have not prioritized investment in regulatory reporting, leading to reduced capacity and capability compared with financial reporting. Focus is often placed on implementing tactical fixes rather than strategic ones,” the BoE wrote. Among the BoE’s findings: Firms that invested in data processes and reducing manual tasks had fewer data errors.
Compliance, regulation and risk analysis go hand in hand to make sure that capital adequacy is in place, and that by extension, customers’ accounts – whether belonging to enterprises or individuals – are safe. With that safety in mind, the financial ecosystem’s foundation is stronger, and the data sharing – among the FIs, the FinTechs and the consumers themselves – can be cemented by trust.
As PYMNTS recently noted, only 3% of financial services firms said they were ready for PSD2’s open banking regulations, which go into effect in March 2022. The biggest problems with open banking implementation revolve around data protection. Nearly two-thirds of respondents said they were having trouble guaranteeing data safety across multiple systems. That seems to speaks to the need for some retooling to make sure data safety is more robust than it has been previously.
Also read: Automation Can Do for SCA Compliance What Human Hands Cannot
