Open Banking – The effects for Accountancy

“Open Banking will transform how financial service organisations view themselves and each other”.

Open Banking is the new directive entering the UK banking industry in January 2018. It requires banks to transfer confidential customer data to third parties with an aim to innovate the overall banking sector. It is part of the second European Payment Services Directive (PSD2).

What is Open Banking?

Open Banking is a financial system led by the UK’s Competition and Markets Authority (CMA) that supplies users with data through Application Programming Interfaces, known as API’s. Its purpose is to innovate an individual’s banking experience and allows a more accurate view of their finances.

The Open Banking concept provides new opportunities by allowing banks to enhance their customer ecosystem.

How does it work?

A bank securely shares customer data with third-party companies or apps through the use of API’s. API’s eliminate security problems such as confidential information being viewable to hackers.

To access a user’s bank information, the third party provider must provide a token. This allows the bank to be the keeper of the information, meaning no information needs to be stored on the app.

What does it mean for accountancy?

The process will allow access to banking statements to be much simpler, meaning as a result, customers will have better manageability of finances, leaving accountants to focus on the value-added part of the profession.

Open Banking is believed to bring innovation to the sector due to the significant changes in the extent to which various business software tools consume financial data.

The benefits it will bring to Accountants is the opening up of access to data. Accountants will become empowered, as they can focus on being advisors due to administrative processes becoming more automated.

However, along with the benefits comes the negative impact on accountancy. It is suggested that there is the potential for increased competition from the banking sector. As banks will have access to collect data through open API’s, there is less risk of them offering advice, as a result they may position their services as business advisors.

A further adverse effect on the accounting sector is the potential threat of data breaches due to the increased accessibility of data. Accountancy firms must ensure they have taken cyber protection precautions such as the installation of encryption software on all electronic devices. This will be a requirement once The General Data Protection Regulation (GDPR) is enforced.

To avoid this, firms should have a clear reporting procedure in place to ensure individuals are aware of who and how to report breaches that may occur. 

The link with Cloud Accounting

Open Banking will further the benefits that were introduced to the accounting sector as a result of cloud accounting software. The new digital software increased the accessibility of data for the accountant and the customer, and open banking will increase the rate at which this is occurring. However, the Open Banking concept may reposition the cloud accounting system in the sector, by shifting power away from it in the future.

Accountancy firms that are developing their own software competing with systems such as Xero could benefit from open banking as it will make it easier for firms like these to build this software.

The implementation of Open Banking is set to accelerate technological changes in the UK retail banking sector. Personal customers and small business will be able to share data securely with third parties and banks, increasing the manageability of their accounts and as a result, enabling them to take more control of their funds.

Although it is not fully understood how Open Banking will affect the accounting industry, it should not be viewed in isolation. It should be considered in conjunction with wider regulatory changes such as PSD2, the UK data privacy bill and GDPR.

The Opportunities

Open Banking presents opportunities to the sector as well. The system brings with it the chance for accountants to deal with new types of clients as well as an opportunity to upskill resources to ensure they understand the modifications for the industry.

As the financial technology sector develops further, the accounting industry can grasp the opportunity to provide support to a new range of organisations such as supporting financial decision-making and working alongside a variety of entrants to the sector.

Safeguarding confidential information 

Due to API’s making it possible to share account information, a variety of safeguarding procedures will have to be implemented. These include:

  • All Third Party Providers (TPPs) have to be approved by the Financial Conduct Authority (FCA) before they can appear on the Open Banking Directory.
  • No TPPs can access a customer’s information without their permission. Customers must provide their consent to allow TPPs to contact the bank in the first place.
  • When the TPP asks the customer to give them access to their financial information, the customer will be redirected to the banks interface so the customer can provide their consent. When that happens, banks run security checks. If the TPP is not on the Open Banking Directory, they will not have the access to the information

Further Information

For further information regarding Open Banking and the effects it may have on the accounting industry, please do not hesitate to contact Paul Windmill. Paul can be contacted on or you can call on 01923 224411.