Open Banking is no longer a distant vision for the U.S.; it is now a reality driven by imminent federal regulations. With the expected publication of rules in October 2024, financial institutions must prepare for a seismic shift in how consumer data is accessed, shared, and secured across the financial ecosystem. At the core of this regulatory shift is Section 1033 of the Dodd-Frank Act, which mandates that financial institutions provide consumers the ability to share their financial data with third parties, in a secure and standardized format.
For financial institutions, this means it’s no longer sufficient to keep consumer data locked within proprietary systems. Now is the time to plan, design, and implement open banking platforms and capabilities that not only meet these compliance standards but also create opportunities for innovation and growth. Whether your institution chooses to build its own platform, partner or engage with a platform provider, or use a hybrid approach, the key components described below are essential to ensuring compliance with Section 1033 and maintaining a competitive edge in the financial marketplace.
If you're looking for a deeper understanding of Section 1033 before diving in, we recommend exploring our comprehensive blog on CFPB's Section 1033 for further insights: https://www.achievealtitude.com/post/comprehensive-guide-to-section-1033Â
Open Banking Platform Components
To comply with Section 1033, an open banking platform must contain several key components that enable secure data sharing, robust API management, and strong consumer consent controls. Below, we break down these critical elements and explain their importance to achieving regulatory compliance.
Developer Portal
A developer portal is the central interface with which developers interact for various platform capabilities. The developer portal consists of four major components: APIs, Developer Onboarding, Sandbox, and Documentation.
APIs
APIs are at the heart of open banking. They enable third parties access consumer data. The Developer Interface must contain Section 1033 compliant APIs that are secure, scalable, and well documented. APIs must be in an accepted industry standard, well-designed, robust and performant.
Developer Onboarding
An easy developer onboarding process is key for developers to begin using your APIs. A well-designed onboarding process will contain a streamlined setup process, resources and tools, and code samples to get developers started.
Sandbox Environment
While not explicitly required under Section 1033, a sandbox environment is critical for testing third-party applications before they access live data. This non-production environment mimics the real system, allowing developers to validate their applications in a controlled setting. A well-maintained sandbox can reduce integration risks and improve integration quality.
Documentation
Detailed and clear documentation is essential to ensuring that third-party developers can integrate without issues. Documentation can include technical and process documents, system architecture, coding standards, project guidelines and step by step tutorials.
Associated 1033 Requirements:Â 1033.301 (General Requirements), 1033.321 (Interface Access), 1033.331 (Responding to Requests for Information)
API Management
API management encompasses the design, deployment, security, and monitoring of the APIs that facilitate data sharing. A strong API management system ensures that APIs are scalable, secure, and able to handle the demands of third-party data access under Section 1033. Institutions should invest in API lifecycle tools that include monitoring, security controls, and version management.
Associated 1033 Requirements:Â Implicit in all Data Provider rules under Section 1033
Authentication and Authorization
Authentication and Authorization are key requirements in Section 1033. Authentication refers to verifying the identity of a user who is making an API request. Authorization refers to verifying that an authenticated user can perform a specific action or access a resource.
Open banking platforms must implement OpenID Connect for identity management and FAPI 2.0 security profile for identity management and authentication. FAPI 2.0 is based on the OAuth 2.0 Authorization Framework and provides multiple security advantages, including Strong Customer Authentication (SCA) which mandates multi-factor authentication, sender-constrained access tokens, and mutual TLS (mTLS), all of which significantly reduce the risk of token theft and misuse. In addition, the open banking platform must have a strong authorization mechanism that validates scopes and permissions, and supports processes for token generation, expiration and revocation.
Associated 1033 Requirements:Â 1033.301 (General Requirements), 1033.321 (Interface Access), 1033.331 (Responding to Requests for Information)
Consent Management
Managing consumer consent is the backbone of Open Banking compliance. Without clear, explicit consumer consent, data sharing cannot occur. A well-designed consent management system ensures that consumers can easily give, revoke, and review their consent for third-party access. Further, when giving consent the user must be clearly informed of the purpose for which data is shared, and needs the ability to select the data elements that are shared. The consent management mechanism must adhere to data minimization principles, where only data that’s strictly necessary for the purpose of a specific service can be shared. This system must track and store an audit trail of all consent records for transparency, accountability and audit purposes.
Associated 1033 Requirements:Â 1033.331 (Responding to Requests for Information), 1033.351 (Policies and Procedures)
Reporting & Analytics
A robust reporting and analytics component is critical for tracking API performance, consumer interactions, and regulatory compliance. Section 1033 requires institutions to disclose performance metrics, such as response times and denial rates, ensuring transparency and accountability. Open banking platforms must contain analytics tools, which can provide invaluable insights into both operational efficiency and regulatory adherence.
Associated 1033 Requirements:Â 1033.341 (Public Disclosure Requirements), 1033.351 (Policies and Procedures)
Optional Components
The following components serve roles that are not required by Section 1033. They may be offered by open banking systems as a value add.
Business Rules Engine (BRE)
A business rules engine (BRE) enables institutions to enforce specific rules on API responses, such as which data can be shared and under what conditions. This component helps ensure compliance with Section 1033 and other regulatory frameworks. A strong BRE allows for automated decision-making, reducing the time to market for new services and enhancing compliance tracking.
Associated 1033 Requirements:Â 1033.211 (Covered Data), 1033.331 (Responding to Requests for Information)
Contract Management
As your institution engages with an increasing number of third-party providers, managing agreements efficiently becomes crucial. A contract management system ensures that agreements with third-party developers are tracked, monitored, and enforced, enabling a streamlined approach to data sharing and compliance with Section 1033.
Associated 1033 Requirements:Â 1033.301 (General Requirements)
Content Management
Managing documentation is vital for both internal and external communications regarding compliance with Section 1033. A content management system (CMS) should be capable of storing consent records, policies, and procedures related to data sharing, while also enabling version control and compliance audits.
Associated 1033 Requirements:Â 1033.341 (Public Disclosure), 1033.351 (Policies and Procedures)
Additional Considerations: Building or Buying an Open Banking Platform
When setting up Section 1033 compliance, financial institutions have three options:
Build an open banking platform. This approach is the most resource intensive, but offers the highest flexibility and control. When building an open banking platform, financial institutions can tailor their developer experience and use cases to their specific needs. They can leverage API management platforms such as Sensedia or Axway, which offer powerful developer capabilities and many of the components required for Section 1033 compliance.
Partner with an open banking platform provider. This is the middle ground that can reduce upfront investment and achieve a faster time to market. By partnering with a vendor such as Plaid, Yodlee, MX or OzonaAPI, a financial institution can achieve compliance with the tools needed, as well as leverage many out-of-the-box use cases.
Engage with core banking vendor. Financial institutions seeking minimal investment and faster implementation can opt for compliance through their core banking vendor (e.g., Temenos, Fiserv, Alkami and Jack Henry). This approach minimizes complexity and upfront investment, while providing some use cases and configuration options. This also reduces the burden on internal teams while ensuring regulatory readiness.
For those interested in delving deeper into Open Banking Platforms, we invite you to explore our detailed guide on the topic: https://www.achievealtitude.com/post/altitude-s-guide-to-open-banking-platforms
Conclusion
There are multiple options for achieving Section 1033 compliance. Regardless of the option your organization chooses, your open banking platform will have to support a core set of components. When choosing your approach for Section 1033 compliance, your organization must consider their appetite for technology investment, need for customization, business strategy, and desired use cases. Altitude Consulting is here to support you every step of the way with strategic guidance, platform and partner selection, operationalization and monetization.
Reach out for a consultation: https://www.achievealtitude.com/contact.
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