Plaid Financial Limited – Written evidence (FSB0004)
Introduction
Plaid Financial Limited is grateful for the opportunity to give evidence to the House of Lords European Union Services Sub-Committee inquiry into financial services following the UK’s withdrawal from the European Union. We would be happy to come and provide additional evidence either written or orally.
The UK’s continued position as a leading global centre for finance and innovation requires continuous efforts to anticipate the future of financial services. Consumers increasingly expect that their interests and choices should be at the heart of their finances, the UK has an opportunity to take the lead globally by going above and beyond the existing regulatory framework.
Background
Regulated by the Financial Conduct Authority as an Authorised Payment Institution (Firm Reference Number: 804718), Plaid builds technical Application Programme Interface (API) infrastructure that connects consumers, financial institutions, and fintech developers together - giving consumers greater control over their own financial data. By enabling fintechs and developers to build creative compliant solutions on top of open banking infrastructure, Plaid is focused on ensuring the success of the goals underpinning open banking and the Payment Services Regulations (PSRs). Plaid is looking to build on its experience of creating digital financial infrastructure to deliver best in class API experiences and data security for our clients and their payment service users.
Founded in 2012, we currently connect 3,000+ apps and services to 15,000+ financial institutions in the US, Canada, UK and Europe. Plaid APIs are being leveraged across an array of fintech verticals from personal finance and lending, to brokerage and consumer payments. Our global footprint allows us to understand and compare across markets what does and does not work. We are working with our clients to leverage open banking while also looking to develop new use cases under open finance.
Payment Services Directive and Open Banking
There are areas of the UK regime that have incorporated EU standards in ways that have been detrimental to the UK’s domestic market. Specifically, the way HM Treasury has interpreted Account Information Services under the revised Payment Services Directive (PSD2).
Developments in fintech and data processing are moving at lightning speed. Reviewing the existing regulatory framework to ensure it is fit for this new age of digitalisation will help to enable innovation in the financial services market to the benefit of businesses and consumers alike. The UK has already taken a lead in modifying the existing regulatory framework for this purpose, with the HMT Payment Landscape Review.
In the UK, PSD2 was implemented through the PSRs 2017. One of the key policy introductions is a new regulated activity called account information services (AIS).
AIS is defined in the PSRs and has generally been interpreted to mean that the display of account information (i.e. current account balance, transactions, account number and sort code) is the activity that requires a firm to be regulated.
Meanwhile in the EU other National Competent Authorities have interpreted AIS to mean that the retrieval of payment account information is the activity that requires a firm to be authorised.
These different interpretations have affected the way open banking has developed. The UK has taken a position where any firm looking to benefit from open banking needs to be regulated or partner with a regulated firm. This has introduced barriers to entry for a lot of firms who see open banking as a value-added service rather than their key revenue-generating services. However, in the EU because the interpretation is different only certain firms need to be regulated, meaning the firms who see open banking as a value-added service may not need to be regulated and can instead partner with a regulated firm and almost immediately launch their product.
Our main recommendation would be that policymakers (HMT) and regulators (FCA) review their interpretation of AIS in order to ensure the UK remains a key market for the development of innovation within open banking and payments. As more and more service evolution takes place at pace, there is a risk that regulation can quickly become out-dated, hamper competition and innovation as new ways to serve customers and clients emerge.
November 2020