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Pro-competitive regulation and consumer inertia in the face of Open Banking *

Oscar Borgogno, PhD Candidate, Law Department, University of Turin and Research Intern at the Bank of Italy.

Giuseppe Colangelo, Jean Monnet Chair in European Innovation Policy and Associate Professor of Law and Econo­mics, University of Basilicata.

The increasing pace of FinTech development has triggered a worldwide race among policy makers to overhaul their own regulatory landscape in order to be as innovation friendly as possible. Consequently, a vast array of new tools and regulatory practices have emerged over recent years, threatening to disrupt traditional approaches to regulation. This raises the need to explore the true potential of each allegedly new practice to avoid any confusion between original, far-reaching avenues of market regulation and rebranding of old ideas prompted by legal marketing considerations.

By drawing on our article on the data access regime enshrined in the Payment Service Directive (PSD2), in two follow-up papers we investigate the pro-competitive paradigm underlying the Open Banking projects emerging worldwide [1]. We argue that this approach is the most suited to strengthen consumer bargaining power and harness the competitive potential of data-enabled services within retail financial markets.

In our first paper ‘Regulating FinTech: from legal marketing to the pro-competitive paradigm’, we put these newly arisen tools into a systematic framework by distinguishing three different, but not mutually exclusive strategies: laissez-faire, functional regulation and tailored regulatory strategies [2]. This last one requires regulators to identify the original features of specific market developments and accordingly design pieces of regulation, tailored on such new technology-enabled functionalities. In our view, this strategy represents the Pandora’s box from which the largest part of new regulatory measures involving FinTech is stemming. For instance, regulatory sandboxes and innovation hubs are worthy of consideration as they allow to evaluate services and business methods with reduced risk of regulatory exposure. However, policy makers need to be aware that such tools are resource intensive and tricky to handle for regulators.

Rather than requiring regulators to engage in mammoth tasks (such as offering general counselling to market participants in the process of product design and implementation), the pro-competitive paradigm focuses on ex ante regulation in order to lay down [continua..]

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