Regulation establishing the standard-setter for open banking has been finalized by the Consumer Financial Protection Bureau.
In an effort to promote competition and enhance data security in the banking sector, the Consumer Financial Protection Bureau (CFPB) has unveiled its open banking rule. First published by Anna Hrushka on October 19, 2023, this rule is a significant step towards implementing Section 1033 of the Dodd-Frank Act, which grants consumers control over their financial data.
The open banking rule mandates financial services firms to share data with other companies upon a consumer's request. To ensure compliance with data access requirements, secure authentication, and consumer consent management, the CFPB has outlined specific attributes for standard-setting bodies. These bodies are expected to create frameworks supporting secure and authorized data sharing, procedures for consent management, data access security, and guidelines around fees for data access, liability, and the definition of consumer representatives.
The CFPB aims to prevent dominant firms from rigging standards in their favour and has set forth mechanisms for revoking a standard setter's recognition if they fail to adhere to these attributes. Recognized standard setters have a five-year limit, after which they must apply for re-recognition.
The open banking rule also prohibits financial institutions from hoarding a person's data. This rule is designed to ensure ongoing adherence of recognized standard setters to the attributes codified by the CFPB. Decisions made by standard setters must be balanced, by consensus, with due process and appeals.
At the Financial Data Exchange Global Summit in March, CFPB Director Rohit Chopra expressed concerns about powerful players weaponizing industry standards and skewing them to benefit dominant firms. The CFPB's open banking rule is a response to these concerns, aiming to establish fair and transparent standards for the industry.
The open banking rule requires banks to make personal financial data available to consumers through digital interfaces that are safe, secure, and reliable. This rule is part of the CFPB's broader framework to improve competition in the banking sector and empower consumers to take control of their financial data.
The CFPB's open banking rule is a significant development in the regulation of the banking sector. As the rule undergoes refinement through public comment, it promises to reshape the landscape of banking, fostering competition, and enhancing data security for consumers.
This article is categorized under Regulations & Policy and Technology.
References: 1. CFPB Open Banking Rule Proposal 2. Section 1033 of the Dodd-Frank Act 3. CFPB's Open Banking Rule: What It Means for Consumers and the Industry
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