In a recent speech at the Financial Data Exchange Global Summit, Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), discussed the current state of open banking in the United States and emphasized the importance of standard-setting organizations in the transition. He noted that these organizations play a crucial role in ensuring that the system is open and interoperable but warned against the potential of standard-setting to be used in an anti-competitive manner to benefit dominant firms.
As the CFPB begins the process of finalizing its proposed rule under § 1033 of the Dodd-Frank Act (Proposed Rule), also known as the Personal Financial Digital Rights rule (discussed here), Director Chopra revealed that the CFPB intends to set industry standards, including data standards and sharing protocols among financial institutions that will be subject to the Proposed Rule. Some of these standards might be technical in nature while others might be more along the lines of best practices, but Director Chopra emphasized that the CFPB will be vigilant to ensure that standard-setting does not skew to benefit dominant firms with prevailing market power.
To guard against potential anti-competitive behavior, the Proposed Rule provided for the CFPB to set rules around the formal recognition of standard-setting organizations. To do that, the CFPB intends to codify the attributes that standard-setting organizations must demonstrate to be recognized, well before the finalization of the Proposed Rule this fall.
The CFPB is considering several attributes for identifying and recognizing these entities. For instance, the CFPB is considering whether standard-setting organizations should be balanced, ensuring that no single entity or group of entities dominates the decision making. In addition to scrutinizing the makeup of the board or group that makes determinations regarding the setting or modification of standards, the CFPB will also be looking closely at the organization’s funding structure to guard against favoritism. The CFPB will also consider whether there is a meaningful way for consumer privacy interests or the interests of small firms to be taken into account as well.
After codifying these attributes, the CFPB plans to invite standard-setting organizations to seek formal recognition. According to Director Chopra, this process will begin as soon as is practicable before the Proposed Rule is finalized. Director Chopra noted that he would eventually like to recognize more than one standard in order “to allow the market to develop without complete reliance on one set of protocols.” In terms of maintaining recognition, Director Chopra suggested the recognition might be revocable or time-limited under certain circumstances to guard against “bait-and-switches or any other mischief.”
Chopra concluded his speech with a warning to existing standard setters, stating that they should not take their place in the market for granted. While the CFPB prefers market-driven standards, it will not rely on such standards if they are structured to allow incumbents to maintain their market power to the detriment of open banking.
Moreover, Director Chopra asserted that if the CFPB is unable to identify suitable standard-setting organizations, it will be prepared to step in with more detailed guidance of its own. He urged the industry to think critically about these issues now, to stand ready to engage with the CFPB, and to prepare for applying for recognition even before the Proposed Rule is finalized this fall.
