Stanford – Vienna Transatlantic Technology Law Forum A joint initiative of Stanford Law School and the University of Vienna School of Law TTLF Working Papers No. 29 A New Banking Paradigm: The State of Open Banking in Europe, the United Kingdom, and the United States Diana Milanesi 2017 TTLF Working Papers About the TTLF Working Papers TTLF’s Working Paper Series presents original research on technology, and business- related law and policy issues of the European Union and the US. The objective of TTLF’s Working Paper Series is to share “work in progress”. The authors of the papers are solely responsible for the content of their contributions and may use the citation standards of their home country. The TTLF Working Papers can be found at http://ttlf.stanford.edu. Please also visit this website to learn more about TTLF’s mission and activities. If you should have any questions regarding the TTLF’s Working Paper Series, please contact Vienna Law Professor Siegfried Fina, Stanford Law Professor Mark Lemley or Stanford LST Executive Director Roland Vogl at the Stanford-Vienna Transatlantic Technology Law Forum http://ttlf.stanford.edu Stanford Law School University of Vienna School of Law Crown Quadrangle Department of Business Law 559 Nathan Abbott Way Schottenbastei 10-16 Stanford, CA 94305-8610 1010 Vienna, Austria About the Author Diana Milanesi is an attorney member of the State Bar of California, the New York State Bar, and the International Bar Association. Since 2016, Diana has served as legal adviser to Startup Europe India Network, a high-profile network built in collaboration with the European Commission to connect the pan-European and Indian startup ecosystems and foster growth and investments across the Indian, EU and U.S. technology markets. Prior, from 2013 to 2015 Diana worked as corporate attorney at Squire Patton Boggs LLP (San Francisco (CA) office). Her practice focused on advising domestic and international clients in connection with venture capital transactions, IPOs, Rule 144A/Regulation S offerings, fund formation and capital raising transactions, tech-focused transactions, cross-border reorganizations, and M&As. At Squire Patton Boggs LLP, she also served as attorney contributor on the Squire Patton Boggs Capital Thinking Blog, providing insights and updates on important U.S. financial regulation and securities law developments. Prior to join Squire Patton Boggs LLP, Diana gained experience on seed and early stage venture capital investments in technology companies at an international seed venture capital firm in San Francisco (CA). From 2009 to 2011, she worked as associate in the Banking and Finance Department at Gianni, Origoni, Grippo, Cappelli & Partners (Milan office, Italy), where she gained extensive experience on banking and finance, private equity, and capital markets transactions. Diana has also collaborated as lecturer and researcher at Mind the Bridge Foundation and Startup Europe Partnership, an integrated platform established by the European Commission to support the growth and sustainability of European startups and scaleups. Diana earned her Bachelor Degree in Judicial Science (LL.B.), summa cum laude, in 2007 and her Master Degree in Law (J.D.), summa cum laude, in 2009 both from Luigi Bocconi University, Italy. As part of her Master Degree in Law, in 2008 she attended an exchange program at Duke University School of Law, where she focused her studies on business law and financial regulation. In 2010, she received a certificate in debt market from the London School of Economics and Political Science. Diana earned her LL.M. Degree from UC Berkeley School of Law in 2012, with a concentration in securities regulation and corporate finance. During the LL.M. program, she served as member on the Berkeley Business Law Journal. Diana received her J.S.D. Degree from UC Berkeley School of Law in 2017, with a concentration in venture capital, financial derivatives, regulation of capital markets and securities. During the J.S.D. program, she also attended MBA courses in financial derivatives, private equity, and venture capital at UC Berkeley Haas School of Business. Her dissertation thesis examines the operations of central counterparties for over-the- counter financial derivatives (OTC CCPs), analyzes the design of OTC CCPs’ default waterfalls, and investigates their systemic risk implications. Diana has published various articles in the fields of securities law, financial regulation, and venture capital. Her present research focuses on the rapidly evolving legislative and regulatory frameworks for financial technology in the U.S., EU and UK. She has been a TTLF Fellow since 2016. General Note about the Content The opinions expressed in this paper are those of the author and not necessarily those of the Transatlantic Technology Law Forum or any of its partner institutions, or the sponsors of this research project. Suggested Citation This TTLF Working Paper should be cited as: Diana Milanesi, A New Banking Paradigm: The State of Open Banking in Europe, the United Kingdom, and the United States, Stanford-Vienna TTLF Working Paper No. 29, http://ttlf.stanford.edu. Copyright © 2017 Diana Milanesi Abstract Open Banking is an evolution of banking that focuses on how banks share their data, products/services, and functionality, and how they enable consumers to share their financial data, account information, and functionality for access and use by authorized third parties. This evolution is expected to increase transparency, promote competition, and foster innovation in the banking and financial services industry. These positive outcomes, in turn, will help empower consumers and businesses by giving them greater control over their data and finances. The evolution prompted by Open Banking goes far beyond technology. Open Banking represents a defining moment at which banks are forced to re-think their role and the approach they take to their business. Open Banking focuses on the way banks innovate through partnerships and collaborations with various participants within and outside the financial and banking services industry. It is about the way banks and third parties (co)-create the value and flexibility that speaks to the real-world needs of consumers and businesses by making their financial data and account information more available and widely shared than ever before. At present, a number of interconnected forces are driving the movement towards Open Banking. These forces include a substantial demographic shift, evolving costumer preferences and expectations, technology advances, and increased competition by new entrants such as fintech companies and large tech giants. Alongside the described forces, legislative and regulatory reforms in Europe and the United Kingdom are acting both as a catalyst for change and an accelerator of openness in the financial and banking services industry. In parallel to these reforms, governmental authorities and regulators in the United States are starting testing the waters in Open Banking by gathering more information about current practices and potential market developments and improving their engagement with various industry participants and consumer representative groups. Regulators have certainly an important and constructive role to play in creating and promoting the openness needed for a new paradigm of banking to flourish. In determining whether, and to what extent, to take regulatory actions with respect to Open Banking and consumer-permissioned access to consumer financial data and account information, regulators should be mindful of the global nature of the issues at stake. In fact, overly prescriptive rules regarding access to consumer data will have the negative effects of: depriving consumers of innovative products and services which could help them (re)-gain control over their finances and materially improve their financial health; placing companies subject to any such rules at a significant disadvantage vis-à-vis their competitors in other jurisdictions; creating a fractured regulatory framework to the extent any such rule diverges substantially from international access standards or conventions; and stifling innovation by precluding fintech companies and other new entrants from accessing consumer data and/or scaling internationally. Furthermore, any regulatory action aiming at promoting Open Banking and facilitating consumer-permissioned access to consumer financial data and account information should coordinate with ongoing industry initiatives and should be subject to public comments to ensure that a measured and effective approach is developed to the benefit of all interested parties. In addition to enabling consumers to access and share their financial records with trusted third parties without undue restrictions, Open Banking-related regulatory reforms should also provide for the establishment and enforcement of adequate safeguards. This is important because the value of Open Banking can only be realized when openness is nurtured and delivered in a responsible manner, which: maintains the trust critical to the functioning of the banking and the financial system; promotes transparency, privacy, and security in the use and disclosure of consumer financial data and account information by consumers who can control how to start, manage, and terminate access thereof; and ensures the continue safety and soundness of the banking and financial system as a whole. There are real tensions around many of the issues discussed above. Nevertheless, there