Data is crucial to the success of any advice business.
Firms often bemoan the lack of necessary guidance to provide optimal services in this area, but legislation currently going through parliament could compel financial services companies to provide far more comprehensive information.
This could have dramatic consequences.
In the past five years, we have seen both the hugely successful delivery of Open Banking and the lamentable Pensions Dashboards Programme (PDP), which, although already four years overdue, is still a long way from delivering any real consumer benefit.
The latest Open Banking impact report identifies that 11% of consumers and 17% of small businesses are using it. Adoption has increased by just over 20% year on year.
Our sector is a key target and firms could have just a few months to prepare for major change
Of the 151 firms regulated to provide such services, 90 are providing services to support financial decision making. Currently, however, few advisers are leveraging the opportunity it provides.
Transformation
The Data Protection and Digital Information (No. 2) Bill will massively transform the way platforms, insurers and other financial services providers address data requests. From what I see, most are poorly prepared for this.
The legislation had its third reading in the House of Commons on 29 November, at which point the government introduced 240 amendments. The full transcript of the reading runs to 189 pages and is going to need detailed further analysis.
For now, let me outline the background to the original legislation and I will return to this subject once I have scrutinised all the changes.
Essentially the bill includes provisions that are key to the Department for Business, Energy & Industrial Strategy’s Smart Data project. However, it is clear from the engagement of the Treasury and the Financial Conduct Authority that our industry is a key target too.
Thus far, information has to be shared only with consumers. But, if this extends to TPPs, advisers may need significant extra support from their tech suppliers
The government has clearly learned from the PDP that compulsion will be necessary to persuade the industry to embrace its requirements.
Primary legislation was needed to force pension providers to support the dashboards project, which has been a major cause of the delays. The Data Protection and Digital Information (No. 2) Bill enables the government to compel industries to support this project with only the introduction of secondary legislation.
This will mean industries could have just a few months to prepare for major change. As such, the implication of the action should be on the risk register for every financial services firm.
Key provisions of the legislation will enable the extension of the consent model applied in Open Banking to other industries. Essentially, this means consumers can decide who they want to have their data, and give permission to so-called third-party providers (TPPs) to request this information.
A company receiving a valid information request from an authorised TPP will have a legal duty to provide this. This has enormous potential to open access to consumer financial data. For example, it could force platforms and insurers to provide information to advisers quickly — something they are currently so reluctant to do.
The government has clearly learned from the PDP that compulsion will be necessary to persuade the industry to embrace its requirements
We could see the emergence of multiple TPPs, compelling the delivery of any customer information held by an organisation to whoever the customer decides should have it.
Extra support
One area that is unclear is whether this responsibility could be extended to advisers to share client data in the future.
The General Data Protection Regulation already requires an organisation that holds an individual’s data electronically to make it accessible to them in an easily consumable digital format. Thus far, the information has to be shared only with consumers. But, if this extends to TPPs, advisers may need significant extra support from their tech suppliers.
We could see the emergence of multiple TPPs, compelling the delivery of any customer information held by an organisation to whoever the customer decides should have it
The industry is currently focusing on the distribution of data via hub services such as Origo and Finio. It could be that this legislation will lead to as many firms looking to operate such hubs as currently support financial decision services. If so, this could either present a major challenge for the industry or be a key driver for outsourcing services to hubs.
An important issue will be who pays. It is noticeable that, under Open Banking, the institution does not recover the cost of such services from the TPP.
Ian McKenna is founder of AdviserSoftware.com
This article featured in the Dec 2023/Jan 2024 edition of MM.
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