New Open Finance Regulations Coming to the Banking Sector: A Shift for Advisers
New regulations that will shape the future of open finance in the banking sector could be in place by the end of the year. Financial advisers are being encouraged to start thinking about how these developments will impact the way they conduct business moving forward.
At the close of last year, four of New Zealand's largest banks hit a significant milestone in their journey toward open banking. These banks successfully met the deadline for delivering Payments NZ's Account Information API standard. APIs, or Application Programming Interfaces, allow different software systems to communicate, enabling third parties to access consumer data securely.
Josh Daniell, founder and COO of open finance infrastructure fintech Akahu, predicts rapid progress in the development of regulated open finance over the next one to two years. However, he cautions that it will take time before data can flow freely across all financial services companies.
Currently, third-party participants must sign contracts with individual banks to access their APIs. Although new regulations will eventually make these contracts obsolete, Daniell anticipates that there will still be limitations for years to come. “Initially, these regulations will apply only to the five largest banks. For customers of smaller banks, if they want to share their data or connect it with services like Sharesies or Hatch, they will have to use unregulated open banking,” he explains. Daniell expects this dual system to persist for many years until the regulations broaden and encompass a wider range of data holders.
The Consumer and Product Data Bill will lay the legal foundation for open finance, with MBIE(Ministry of Business, Innovation and Employment) responsible for drafting the detailed regulations. This formalization will mean consumers no longer need to share login credentials with third-party apps. The new rules will also outline key aspects such as liability, fees, accessible data types, and API performance standards.
Many advisers are already using unregulated open banking processes in their businesses, according to Daniell, and the benefits are clear. "It surfaces opportunities, for instance, if data indicates that there should be a discussion about insurance, particularly when there's been a material change in income or other data shifts that make it worth addressing," he says. "Such opportunities would not be uncovered unless the client shared information at a certain review point with that adviser."
However, Daniell stresses that advisers need to consider how to maximize the value of clients' raw data. "Data needs to be categorized and assigned a standardized set of types before it can be effectively used. For instance, if you're sending that data to a bank for analysis, it needs to be organized to meet specific lending thresholds," he explains. "There's a lot of work required to make raw data useful, and in New Zealand, advisers are actively seeking better solutions."
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