Context
The FIDA (Financial Data Access) reform was launched in June 2023 by the European Commission. It is a logical continuation of Open Banking (framed by the PSD2 directive) towards Open Finance, expanding the range of covered products and concerned actors.
Its application is scheduled for 2025. All financial institutions are concerned (banks, insurance companies, and investment firms).
Regarding the products, a wide variety of investments are targeted: Savings accounts, loans, mortgages, and insurance products.
Operation
The goal of FIDA is to visualize all the products held by an investor (retail or institutional) from one establishment (deposit location A) to any other establishment (deposit locations B, C, D…).
This visualization will be authorized via a real-time managed authorization dashboard (notion of explicit request and granted permission).
Establishments must ensure the protection, confidentiality, and security of shared data.
New revenues can be perceived following the reform:
- Remuneration for data sharing
- Marketing of new product or service offers based on this data
- Consolidated view across multiple establishments, multiple accounts, multiple products (finance, insurance, and investments)
Institutions will have 18 months after the adoption of the regulation to comply with the directive.
Consequences for the securities world
SLIB’s activity being in the world of securities, the impact of this reform can be evaluated differently depending on the activity of the concerned establishment.
Retail Buy-Side establishments
Classic portfolio management (reserved for securities and derivatives) can aggregate other types of assets, either tending towards wealth management or using this information to weigh its purchase/sale or asset allocation decisions.
Risk management can also evolve and become more global by integrating assets whose volatility differs significantly from securities, either more or less.
Similarly, performance analysis can be broadened, subject to a parallel evolution of management mandates (coverage of assets managed under mandate).
Establishments can also offer new offers, increasing competition on certain products and lowering costs for investors or making them at least more transparent. KYC functions will be strategic in this regard (authorization or prohibition of certain products).
Institutional Buy-Side establishments
A similar analysis could be conducted, but this time concerning a much larger panel of products and establishments (integration of foreign products managed outside France).
However, Global Custody professions partly cover the needs for asset consolidation of Buy-side actors.
Sell-side establishments
The sell-side being a world of flows, FIDA will have a lesser impact on broker, clearer, and settler activities. The exchanged data being used only for visualization, dynamic collateral management or margin call payment could be imagined but should go through classic settlement-delivery tools.
The new FISP status
The reform creates the status of FISP (Financial Information Service Providers). Many establishments can claim this status: Banks and financial institutions, fintechs, insurers, management companies, etc.
In addition to data provision, these actors will have to address several issues:
- Data quality: Damaged, corrupted, expired, duplicate data, etc.
- Reference mapping: What about product coding, internal, external? (ISIN, others?) Same for establishments (BIC code, IBAN, LEI, others?)
- Asset valuation: Indeed, the range of products covered by FIDA has wide disparities both in terms of valuation period (real-time, daily, weekly, end of month, annual) and calculation method (marked-to-market, clean or dirty price, NAV, complex evaluation for non-vanilla products).
Consequences for the IT world
Opportunities
Many opportunities are available to software publishers in various fields:
- Data analysis and service offering (purchase/sale recommendation, budget tracking, etc.)
- Communication: Development of real-time APIs
- Data protection: If inter-establishment data exchanges increase, the risk of intrusion or damage will also increase
- Compliance: The use of exchanged data must be done within a regulatory framework.
As we can see, the impacts concern a wide range of services: Datalakes, Chatbots, AI agents, cybersecurity, financial tracking tools.
Conclusion
The FIDA reform, like any reform, brings its share of constraints and opportunities. It is a logical continuation of the opening of systems and borders. In this sense, it can bring beneficial transparency to investors and the entire financial ecosystem.
SLIB, thanks to its securities expertise, is ready to support its clients in their Open Banking projects.
