Saudi Arabia establishes its open banking framework

Pinsent Masons’ Barkha Doshi, who specializes in technology-driven innovation in financial services in the Middle East for Pinsent Masons, said the move should encourage fintech innovation and improve data-driven services for consumers. consumers.

Open banking is a concept that is gaining popularity globally among policymakers, regulators and financial services firms. It’s about releasing data held by financial institutions so that it can be made available to third parties for the purpose of providing competing products or services.

The most mature open banking regimes in the world are found in Europe, where the conversation has already turned to establishing broader ‘open finance’ frameworks.

In the EU, Account Information Service (AIS) providers and Payment Initiation Service (PIS) providers can obtain access to payment data held by banks and other Account Servicing Payment Services (ASPS) under the terms of the Second Payment Services Directive (PSD2) . The regulatory technical standards that are based on the PSD2 provisions concerning access to data aim to reinforce the security of payments and to limit fraud by guaranteeing the existence of a secure mechanism for sharing payment data.

In the UK, a similar open banking framework has been developed which aligns in many ways with the PSD2 regime. The UK framework was originally the product of a review of retail banking by the Competition and Markets Authority, but subsequently evolved. There are long-term plans to develop a new regulatory framework for open banking in the UK.

Other open banking regimes have also been established in other jurisdictions, including Australia, Bahrain and Hong Kong.

The new open banking framework in Saudi Arabia was announced by SAMA, the Saudi Central Bank, which said it was based on “international best practices”. SAMA said it was “monitoring the development of banks and fintechs to ensure they are ready to launch open banking in the first quarter of next year 2023”. The initial focus will be on delivering AIS, with the PIS to follow, he said.

As in other jurisdictions, the Saudi Open Banking Framework defines the requirements that banks and fintechs must comply with to support open banking. The new standards that have been developed consist of guidelines on customer experience as well as specifications for application programming interfaces that banks must provide to third parties.

The Saudi open banking framework is an outcome of the open banking program, which itself is part of a broader fintech strategy in Saudi Arabia linked to the Saudi Vision 2030. open banking via the SAMA regulatory sandbox.

Doshi said, “Saudi Arabia has positioned itself as a leader in the FinTech market in the Middle East through its new Open Banking program. Through the program, new partnerships can begin between banks, financial services companies and customers. From the customer’s perspective, the new program also ensures better use of their financial data. It goes without saying that open banking, and open finance in general, will improve Saudi Arabia’s existing financial infrastructure and fuel the growth of fintech in the region.

Michael J. Birnbaum