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Open Banking regulation: considerations for fintechs and financial institutions

Article

5 mins read

Updated on 25 February 2025

Our subject expert
Charles Rogers

Senior Solicitor - Financial Services (Scottish Qualified)

Open Banking is transforming the financial landscape in the UK, creating new opportunities for innovation, but Open Banking regulation plays a critical role in shaping how you bring products to market.

If you’re a fintech developer or a financial institution looking to leverage Open Banking, understanding its intricacies is essential. From navigating regulatory requirements to building robust APIs, there’s much to consider.

Every decision you make – from securing FCA authorisation to implementing secure data infrastructure – has compliance implications. Our financial services solicitors help you navigate these demands, meet your regulatory obligations and unlock commercial opportunities.

Open Banking regulation in the UK

Open Banking allows customers of authorised third-party providers (TPPs) to securely access financial data and initiate payments. The overarching goals are to foster competition, drive innovation, and empower consumers to take control of their financial lives.

Two core services underpin Open Banking:

Payment Initiation Services: These services enable TPP customers to initiate payments directly from their bank account or other payment account to third parties such as merchants, bypassing traditional methods like credit or debit cards.
Account Information Services: AIS facilitates the aggregation of financial data from multiple accounts, providing consumers with a consolidated view of their finances.

While payment service providers in the UK and Europe have been providing such services for some time, Open Banking has grown significantly since the introduction of the European Union's Second Payment Services Directive (PSD2) and the UK’s Payment Services Regulations 2017 (PSR) (which implemented PSD2 in the UK), which, amongst other objectives, aimed to foster a more competitive market.

Open Banking in the UK has its roots in initiatives designed to increase competition in financial services. Key milestones in its development include:

2014: The UK government commissioned a report titled "Data Sharing and Open Data for Banks" to explore how banking data could be opened up to increase competition.
2016: The Competition and Markets Authority issued a mandate requiring the largest UK banks to develop an Open Banking standard and implement APIs to share data securely.
2018: PSD2 came into effect, and the Open Banking Implementation Entity (“OBIE”) was established to oversee the rollout of Open Banking in the UK.

Currently, Open Banking adoption in the UK is growing steadily. Many fintech companies are developing innovative products using Open Banking APIs, and an increasing number of consumers are using these services to manage their finances more effectively. Major banks are also integrating Open Banking into their services, offering customers new ways to interact with their financial data.

The UK leads globally in Open Banking adoption, with over 10 million monthly users as of July 2024, and an ecosystem of fintech innovators creating dynamic solutions.

Examples of Open Banking innovation

Open Banking in the UK is already driving innovation, enabling faster payments and comprehensive financial insights. Here are examples of the applications and the firms offering them in Payment Initiation Services and Account Information Services:

Payment Initiation Services

TrueLayer is a standout example. This platform enables seamless payments directly from customer accounts, eliminating the need for card details. Merchants benefit from quicker payments and lower fees, while customers enjoy a fast, error-free checkout process.

Another example is GoCardless, which specialises in recurring payments using direct debit technology. By leveraging Open Banking, GoCardless offers a simplified way to manage subscription-based services, reducing business operational friction.

Account Information Services

Lumio allows couples to track their shared expenses, bills, balances, and net worth. It connects bank accounts and credit cards and allows users to control what bills, expenses, and accounts couples share with one another.

AIS isn't limited to personal finance; it also supports business applications. For example, Plaid offers tools for lenders to assess creditworthiness, and Armalytix offer tools for financial crime and social responsibility checks, drawing on data aggregated through Open Banking APIs.

Key considerations for service providers

If you’re developing Open Banking products, you’ll face opportunities and challenges. Here’s what you need to focus on:

Regulatory compliance

Navigating the regulatory landscape is crucial. You’ll need authorisation from the Financial Conduct Authority (FCA) as a TPP, which involves meeting requirements under the Payment Services Regulations 2017 and ensuring GDPR compliance.

You cannot offer Open Banking services without obtaining certain regulatory permissions from the FCA. You must ensure you only carry out payment services and, as the case may be, regulated activities you are authorised to do; otherwise, you may be committing a criminal offence. The FCA's Payment Services and E-Money Guidelines are essential resources for guidance.

Technical infrastructure

APIs enable Open Banking by facilitating secure data exchange between banks and third-party providers. To support this, systems should implement strong encryption protocols and undergo regular testing to prevent data breaches. An API-first development strategy is often used to improve scalability and integration with banks and financial institutions.

The Open Banking Implementation Entity provides technical standards, including specifications for security and authentication, which are crucial for developers. At the same time, the PSR and related Regulatory Technical Standards set the underlying regulatory requirements for such systems.

Building consumer trust

TPPs should clearly communicate how customer data is used and ensure an intuitive user experience. User education campaigns, such as explaining the benefits of Open Banking, can also help overcome initial scepticism.

Fintechs like Revolut have succeeded by integrating Open Banking features directly into their apps, offering a one-stop solution for financial management.

Operational challenges

Operational resilience is critical. You’ll need risk management strategies, including regular audits and a robust business continuity plan. Ensuring service uptime and data reliability will help you build long-term customer trust.

Operational challenges like API downtime can lead to poor customer satisfaction and reputational damage for fintech companies. For instance, in 2022, TSB Bank plc faced significant operational disruptions during an IT system migration, making customers unable to access banking services. This incident led to a combined fine of £48.65 million imposed by the FCA and the Prudential Regulation Authority (PRA) for operational risk management and governance failures. Learning from these incidents, firms have strengthened their IT infrastructure, incorporated backup systems and improved their resilience to prevent service disruptions.

Support for your Open Banking strategy

Developing open banking products comes with unique regulatory and operational challenges, from securing FCA authorisation as a TPP to ensuring your APIs meet technical standards and that your data handling complies with GDPR.

Our experienced financial services solicitors can help you navigate the FCA authorisation process, structure your services in line with the Payment Services Regulations, and advise on your ongoing compliance obligations.

About our expert

Charles Rogers

Senior Solicitor - Financial Services (Scottish Qualified)

Charles is a financial services regulation specialist who advises financial institutions, fintech businesses and service providers on regulated and unregulated financial services. Qualified as a solicitor in Scotland in 2014, he brings experience from private practice, in-house roles and as a legal adviser at the Financial Conduct Authority (FCA), with particular expertise in consumer credit, payments, e-money, retail financial services and consumer protection.

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