Open Banking and Consumer Privacy: A Regulatory Perspective

Abstract

Open banking frameworks have resulted in a significant change to the financial services industry through an open data-driven innovation, competition, and consumer ownership of their data. Meanwhile, the mass exchange of personalized sensitive data between the banks, fintechs, and third parties has caused serious apprehensions about the privacy of consumers and the sufficiency of regulation. The topic of open banking studied in this paper is the perspective to regulation, where the paramount question is how it may become more or less open with respect to innovation-enabling and the protection of individual rights. It discusses the different jurisdictions which involved open banking including the European Union, the United Kingdom, and other emerging markets as they used various regulatory frameworks of how data sharing should be conducted with a required data sharing option and consent based system. The conflict between consumer empowerment and vulnerabilities to data corruption, profiling and cybersecurity danger is discussed with special consideration. This analysis also brings to light the role of laws that enable regulation of data protection in the industry, i.e., both through general protections like the General Data Protection Regulation (GDPR) and various industry regulations. Through the comparison of regulatory strategies, the paper finds abilities and weakness of the existing governance strategies and analyzes the consequences of its contribution on the aspects of financial inclusion, trust and the stability of the market over a long period of time. These results indicate that the strategies that attract attention are not only solid measures of the adoption of privacy consent, liability structure, and governance, but also require regulators to expect potential future challenges that can include algorithmic bias, cross-border data flows, and artificial intelligence (AI) in financial services. In the end, this paper suggests a harmonized adaptive regulatory framework that would nurture innovation on one hand and make sure that the consumer privacy remains a technical pillar of the open banking environment on the other hand.