Cybersecurity Policy Report, CONSUMER FINANCIAL PROTECTION BUREAU—CFPB Director discusses standard-setting in open banking, (Mar 15, 2024)

By Alexander Montano

Fair standard-setting could ensure a level playing field in the new era of open banking.

In a speech delivered at the Financial Data Exchange Global Summit, Consumer Financial Protection Bureau director Rohit Chopra discussed the acceleration of America's shift to open banking while emphasizing the crucial role of standard setters and the process of standard-setting. Chopra also addressed the potential anti-competitive weaponization of the standard-setting process and how standard-setting organizations could be recognized by the CFPB.

In October 2023, the CFPB proposed a Personal Financial Data Rights (PFDR) rule, saying at the time that it intends to facilitate a shift toward open banking: banking with ostensibly improved customer control over personal financial data; expanded competition among financial service providers; and, ease of consumer mobility when it comes to changing service providers (see Banking and Finance Law Daily, Oct. 20, 2023).

In his speech on March 13, 2024, the director noted the “clunkiness” of the U.S. financial system when it comes to switching financial products. The process, Chopra claimed, is fraught with inefficiencies, which discourages consumers from seeking better rates, as evidenced by the fact that “the largest banks in the country have barely budged on their rates, but still retain their depositor base.” To this end, the director described open banking as a solution to “reduce red tape” and enable smoother transitions between financial services.

Chopra’s speech then shifted to the specifics of standard-setting within the financial industry, likening it to universal standards that allow for interoperability in other sectors, such as electronics. He referenced lessons learned from standard-setting in other jurisdictions, specifically, the importance of “striking a balance between regulations being too prescriptive—which can slow adoption and lock the market in to old technology, and regulations not being prescriptive enough—which can lead to messy or fragmented standards, or prevent standards from sufficiently developing.” Chopra discussed how regulators in Australia have prescribed very detailed technical standards for data sharing in their open banking regimes, an approach he is not confident would work in the US. On the flip side, Chopra noted that in the EU, regulators took an approach that led to “fragmented or conflicting standards,” an approach that “created complications for implementation and undermined interoperability.”

The director concluded his speech by examining the potential for the standard-setting process to be exploited in anti-competitive ways, citing historical cases regarding dominant industry players setting standards that benefit them to the detriment of their competition. To counteract this, the CFPB proposes to recognize standard-setting organizations that demonstrate a balanced, transparent, and inclusive approach to the development of standards. This effort aims to ensure that open banking benefits from fair standards, preventing large incumbents from "rigging standards in their favor."

Commenting on Chopra’s remarks, Paige Pidano Paridon, senior vice president and senior associate general counsel of the Bank Policy Institute, issued the following response: “We encourage the CFPB to recognize the Financial Data Exchange as an authorized standard-setting body in its forthcoming rules governing the handling of consumer financial data.”

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