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The US Consumer Financial Protection Bureau (CFPB) has outlined the requirements for industry standard-setting bodies to gain official recognition, aiding compliance with the upcoming Personal Financial Data Rights rule.

The CFPB has identified the key attributes these bodies must demonstrate to achieve recognition for open banking.

Additionally, the CFPB has provided a detailed, step-by-step application guide and explained how it will evaluate these applications.

“Industry standards can be weaponized by dominant firms in order to maintain their market position, undermining competition for all,” said CFPB director Rohit Chopra. 

Chopra continued that the “rule will prevent these firms from rigging standards in their favour by identifying attributes the CFPB will use to recognise standard setters.”

The CFPB has been trying to accelerate the transition to open banking in the United States, which has been going on for some time. 

In 2010, the US Congress enacted personal financial data rights for consumers, opening new opportunities for smaller financial institutions and start-ups. 

However, realising these rights faced considerable delays, in October 2023, the CFPB proposed a rule to implement these rights, and plans to finalise it in the coming months. 

Sources told ����žž they expect the rule to be in place by the autumn. They also noted that the rule should be out before the US elections, due to concerns that a potential future Trump presidency could be less favourable to open banking.

Commenting on the latest announcement, Andrew Gómez of Lipis Advisors welcomed the announcement as “a step in the right direction”.

But, he said, the rules represent only a small step.

“The announcement doesn’t create a standard-setting body, it merely outlines the criteria by which a body would be certified to create a standard,” he said. “This is the first, small step and while significant, in my opinion it just assures the market that market-driven approaches will continue to lead the way.”

What are the new rules?

The new Personal Financial Data Rights rule permits companies to use technical standards developed by CFPB-recognised standard-setting organisations, and the latest announcement initiates the process for these organisations to seek formal recognition.

To be recognised by the CFPB, standard-setting bodies must demonstrate openness, ensuring accessibility to all interested parties, including public interest groups, app developers and financial firms. 

The CFPB stated that standard-setting bodies must be transparent with public procedures and ensure balanced decision-making by evenly distributing authority among all stakeholders, preventing any single interest group from dominating the agenda.

Standards will, meanwhile, need to be developed through a consensus-based process that considers all comments and objections fairly, according to the regulator, which has stressed that due process must be upheld. 

This will need to include documented, publicly accessible policies, adequate notice of meetings, sufficient review times and a fair resolution process for conflicts, including an appeals process for procedural disputes. 

The CFPB has also said that it can revoke recognition if necessary, and bodies must reapply every five years to ensure continuous adherence to these standards.

The CFPB's new rule includes a detailed guide to assist standard setters in applying for recognition, describing a five-step application and recognition process. 

Further, it has also said that it encourages interested standard-setting bodies to begin engaging with the regulator when they are ready to demonstrate compliance with the newly established attributes.

“We’ve seen time and time again that standard-setting lays the foundation for innovation,” said Gómez. “I feel like this is a step in the right direction, even if I would have liked to see more leadership in this space.”

Gómez said that open banking is on the rise in the US, evident through the growth of pay-by-bank suppliers in the US. 

“However, I’m a little concerned that market fragmentation will be the result of the lack of a standard in this space,” he cautioned. 

See also: Regulatory Influencer: US Consumer Financial Protection Bureau Makes Progress on Open Banking