The recently announced Global Open Finance Centre of Excellence (GOFCoE), based in Edinburgh, aims to develop global open finance standards. To do this, it will help to solve some of the challenges surrounding gathering and using data.
Speaking the recent CmdR ScotSoft2020 virtual summit, Financial Data and Technology Association (FDATA) Chairman Gavin Littlejohn discussed some of the projects the centre will be working on.
From a regulatory standpoint, open banking in Europe received a major boost from the introduction of the Second Payments Services Directive (PSD2), which came into force in 2016. This gave customers the right to share their payments data with regulated third parties of their choice, thus laying the foundation for open banking in Europe.
“When PSD2 came into force in Europe, I had quite an interesting view as to what the issues were emerging in the market ecosystem,” Littlejohn said. “These were issues which couldn’t reasonably be solved by any one firm, any one regulator, any one government. It required concerted collaboration across industry and across markets.”
Littlejohn was the writer of a 2018 paper that suggested a centre could be created to encourage collaboration between different groups in the financial ecosystem.
GOFCoE was created to drive the adoption of open finance. It provides a research laboratory and a testing ground for new techniques and technology. Orchestrated by Edinburgh University’s Data-Driven Innovation team, the centre received a £22.5 million government grant in June 2020.
The centre will have access to Edinburgh’s world-class data scientists and supercomputing facilities.
While open banking relies on information, getting it in the first place has traditionally been a challenge. Individuals can be cagey about giving away personal details and financial services firms have proven reluctant to share their customers’ data.
“The issue is very simple,” Littlejohn explained. “A customer will not give you their financial data until you’re in a position to offer them a product or service in return.
“But equally as financial products and services get increasingly algorithmically delivered, the companies can’t build those capabilities without training data. You can’t build algorithms without data to test it on.”
To get around this, the first thing that the GOFCoE team wants to develop is an open finance innovation sandbox. This will use the University of Edinburgh’s supercomputing facility to create a virtual environment to ingest data and create models for testing and innovation.
“It will contain data from multiple markets and multiple financial verticals to create a trading capability for fintech and also access to model banks, API code and a digital library of APIs.”
It is these APIs (application programming interfaces) that are vital, on a technical level, for open finance. They are what allow different applications to communicate with other application, but crucially without having to know how the other works.
Littlejohn compared them to an electrical plug and socket and noted that creating a standardised and secure set of APIs for open finance is crucial to its implementation. The centre and other financial institutions will “work together on a journey to create the common electrical socket and electrical plugs and a conformance test across the market.
“If this works perfectly, we will have a level of connectedness in the security profile across the APIs, which dictates in the modern world, how money moves, and how financial data moves. That would materially improve global GDP by reducing the massive friction across markets and how those things are evolving.”
The facility will host an algorithmic bias test laboratory “to try and reduce discrimination against certain reserve characteristics. And there will be a lot of interesting data science and technology challenges around creating that capability.”
In addition, to help understand financial markets, GOFCoE has created an economic observatory. This will study how people earn, spend, and save money.
“Since the beginning of the economic crisis following the health pandemic, we’ve been working with the banking and fintech sector to ingest pseudonymised data sets from across the market into the data safe haven held on the national supercomputing infrastructure.
“These will be stitched together by the data scientists to give government near real-time understanding of what’s happening in the UK economy.”
GOFCoE is also working on creating a working group to set global open finance technical standards. This will see the centre’s experts developing a written appraisal system for threats and vulnerabilities.
To do this, they will write mathematical proofs against threats and vulnerabilities, which will be overlaid on a digital library of all emerging open source APIs. “The end idea behind this programme is because the mathematical proofs will expose the vulnerabilities and the work will express what those threats are.”
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In addition to this, the centre will help promote cybersecurity by developing an economic crime unit. “One of the challenges in the market is the lack of ability of financial institutions to collaborate because none of them will share their customers’ data with each other. Some of the pattern recognition we could do by involving capacity in a politically neutral trusted space would be of real value to these financial sector participants.”
Littlejohn noted that the next few months will see the centre developing sources of additional funding.
“At present, the GOFCoE team has about a dozen people working on it full time – we have the funding to grow the team out working on all of these really interesting new capabilities.
“As an almost accidental offshoot of this, because of these opportunities at the cutting edge of financial technology data science and security and data ethics and data governance, the centre is going to create a concentration of teaching and learning capabilities. Hopefully, these will be supported by a cluster of universities in addition to Edinburgh University that are interested in supporting the centre.”