Proposed changes to open banking rules could create a two-tiered system that forces reliance on less secure data-sharing methods, industry bodies have warned.
The mortgage broking industry has raised concerns that potential changes to open banking regulations may create a “two-speed regime” that penalises smaller lenders and their customers.
Treasury is currently consulting on proposed changes aimed at improving uptake and reducing costs in the Consumer Data Right (CDR).
The targeted consultation documents, sent by the Treasury to relevant providers and seen by The Adviser, outline a proposal to set a de minimis threshold for authorised deposit-taking institutions (ADIs) to provide more proportional regulation and lower costs for smaller banks.
To be obligated to share CDR data, the total value of resident assets reported by the ADI would need to exceed a de minimis threshold of $5 billion.
The threshold would be expected to leave around 22 ADIs (around 98 per cent of the ADI market and existing data sharing consents) subject to automatic CDR obligations (around 55 ADIs would no longer have obligations).
ADIs that do not exceed the threshold would no longer be obligated to respond to new data requests to share data through the CDR.
This would mean their customers would lose the ability to share data with other lenders and fintechs through open banking, potentially limiting their access to more competitive mortgage, savings, and term deposit rates.
Treasury is also consulting on plans to introduce a third-party disclosure consent, which would let consumers share their data with any chosen third party.
A separate document seen by The Adviser noted: “Treasury views this measure as an essential step in encouraging industries to move away from unregulated forms of data sharing such as screen scraping.”
Changes could ‘hurt disadvantaged members of the community’
The mortgage broking and financial services industries have reacted critically to some of the proposed changes.
Mortgage and Finance Association of Australia (MFAA) CEO Anja Pannek said the industry body strongly supported the continued expansion of open banking for all lenders and non-ADIs, “not a wind back.”
“We are seeing open banking gaining real traction in home lending,” Pannek told The Adviser.
“Just over two months ago, through Frollo for Brokers, open banking became available to every single mortgage broker in Australia, giving their customers a safe and instant way to share and verify their financial data to get access to the right home loan.
“Carving out dozens of smaller banks risks a two-speed regime, with customers of larger lenders able to safely share data through open banking and those with smaller lenders back to using screen-scraping.”
Finance Brokers Association of Australia (FBAA) managing director Peter White told The Adviser: “There’s a huge potential upside for brokers in open banking but what’s needed most is a level playing field.
“The same rules should apply to all and not disadvantage smaller lenders or their clients. By not sharing data sooner, the major banks have effectively stalled progress on open banking, and we urge them to rethink their approach.
“We’ll continue to advocate for a fairer regulatory framework that delivers for brokers and consumers.“
Fellow industry body FinTech Australia also raised concerns about proposed measures to exempt smaller regional banks and credit unions from the regime, although the organisation welcomed the federal government’s consultation on possible reforms.
“This proposal poses a risk to the foundations of open banking,” Rehan D’Almeida, CEO of FinTech Australia, said.
“The power of this pro-competition regime is its universality, which empowers consumers, drives innovation and preserves competition.
“Creating carveouts is likely to create a two-speed system that forces reliance on less secure data-sharing methods, like screen scraping. Australians deserve a functional open banking system and there are promising signs the government is otherwise close to optimising the policy settings.
“FinTech Australia will be pushing back against this proposal to make it clear that this proposal jeopardises crucial national infrastructure and will hurt disadvantaged members of the community.
“We support measures which will make it easier for consumers to participate in open banking and share their own data with organisations of their choice. We therefore welcome the Government’s exploration of new ways to streamline consumer consents, as per this latest consultation.
“However, a broad rollout ensures we achieve the same high adoption rates, low costs and competition gains seen in other jurisdictions like the UK.”
Ruth Hatherley, CEO and founder of software fintech Stryd, expressed concerns that a de minimis exemption would see smaller bank home loans excluded from the benefits of open banking’s network effects.
“Our flagship Stryd Product Repository currently showcases more than 2,000 home loans from more than 80 bank brands,” Hatherley said.
“That’s a big benefit to those smaller ADIs, whose mortgage products are displayed on a daily basis to all of our brokers, aggregators and market partners, at no additional cost to those lenders beyond publishing the CDR product reference data.
“Mortgage brokers who have clients at any of those smaller 55 banks who could be exempted will find it much more difficult to do ongoing and annual reviews to manage their trail book, as the individual borrower’s bank statement data will only be available via methods like screen scraping and emailing PDFs.”
Hatherley also questioned the parity of the proposed ADI exemption versus the regime outlined for non-bank lenders that will come into CDR from 2026 onwards.
“There should be consistency,” she said.
[Related: Ban screen scraping to accelerate open banking adoption, say industry leaders]
