On 14 December 2021, almost one year since the conclusion of the Treasury's Inquiry into Future Directions for the Consumer Data Right (the Inquiry) and the release of its Final Report, the Federal Government has released its Response to the Inquiry's Final Report (Response).
In preparing its Response, the Treasury conducted further public consultation and industry engagement in addition to those hosted throughout the course of the Inquiry.
Drawing from the outcomes of the consultation, encouragingly, this Response widely endorses the conclusions of the Report and accepts the Inquiry's recommendations that the future of the Consumer Data Right (CDR) should be focused on the following pillars:
- greater consumer data empowerment with deeper functionality;
- an economy-wide foundation;
- a more integrated data ecosystem; and
- realising international digital opportunities.
The Inquiry into the Future Directions for the CDR
By way of background, in early 2020, the Federal Government announced the Inquiry, which at a high level, was to examine how the CDR regime could be expanded and leveraged with other initiatives in Australia's digital economy.
The Inquiry was tasked with four objectives, to:
- make recommendations for the expansion of CDR functionality (in particular regarding 'write access' to allow consumers to share data and apply for and manage products);
- examine how CDR can overcome barriers preventing consumers from switching between products and providers;
- consider how CDR can promote innovation and be inclusive for vulnerable groups; and
- identify ways to leverage the opportunities created by CDR.
In response, the Inquiry made 100 recommendations largely around six parts:
- the action initiation framework (also known as 'write access');
- action initiation in the banking sector;
- data sharing enhancements;
- consumer safeguards;
- opportunities for connecting the CDR to the data economy; and
- the CDR Roadmap and other recommendations.
The Government's response to the Inquiry
When announcing the release of the Response at a webinar hosted by FinTech Australia, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, expressed that 'legislative reform will definitely be part of the reform road map'.
Of the 100 recommendations from the Inquiry, the Federal Government has agreed to, or agreed in principal, to 94, with only three recommendations rejected and another three noted. The roll out of the CDR Rules 3.0 already implements a number of the recommendations, such as the tiering of accreditation.
The three noted recommendations were regarding encouraging innovation that benefits vulnerable consumers, leveraging the CDR data safety licence, and aligning data safety accreditations.
The rejected recommendations were linked and revolved around data sharing enhancements, relating to:
- cross-sector application of reciprocity, allowing Accredited Data Recipients to respond to consumer data sharing requests across sectors;
- the identification of equivalent data across sectors; and
- the exclusion of small Accredited Data Recipients from the above data sharing obligations.
The Government disagreed with the concept of cross-sector application of reciprocity. Stakeholders within the regime have already raised concerns that the current reciprocity requirements are excessive, and act as a deterrent to participate in the CDR. As expanding these reciprocity requirements beyond individual sectors would result in a significant increase in complexity, the Government considers that this may limit the growth of the CDR regime. That being said, given the relatively early stage of the CDR regime, the Government has not ruled out potential cross-sector application of reciprocity in the future.
The implementation of the Action Initiation Framework
One of the biggest takeaways from the Response is the Government's agreement to the implementation of an Action Initiation Framework. This will result in competition focused changes, designed to allow consumers to easily compare and switch between service providers.
Action Initiation will allow third-parties to initiate actions beyond their current capacity of mere data sharing with a customer's consent. This third-party could receive powers equivalent to a 'digital power of attorney', with the ultimate goal being for the consumer to merely 'push a button' and be able to grant a third party the powers required to apply for, accept, pay for (see this further explored below in 'Action Initiation and Open Banking'), or manage new products and services on behalf of the consumer. 'Simplified Switching', or smart switching, will similarly be another game changer, allowing CDR to assist consumers to easily and efficiently transfer (switch) between products and providers without needing to manually engage in any applications or processes.
Once these CDR reforms are implemented, Action Initiation will provide a major advantage to Accredited Data Recipients, who will be able to assist consumers with their purchasing decisions on a whole other level, even optimising service and product costs for consumers through 'Simplified Switching'. This could be viewed as centres that will enable consumers to manage and monitor all of their products and services from an Accredited Data Recipient's centralised portal.
Action Initiation and Open Banking
Specific to the banking sector, which was the first industry of the CDR roll out, the Action Initiation Framework will include 'Payment Initiation' which allows payment instructions to be sent using the CDR regime to request the transfer of money.
'Payment Initiation' will be facilitated through the existing financial infrastructure, and could allow for an Accredited Data Recipient to send payment instructions on behalf of a consumer while providing payment or merchant services. Payment Initiation will accelerate transactions, and improve customer experience in the making of a purchase. This could also allow transactions to occur directly from bank to merchant, reducing fees paid to payment service providers, and allowing almost instantaneous transfers.
Importantly, the Government has agreed to prioritise bank account-to-account payment initiation through the CDR in order to co-ordinate with the recent announcements regarding payment reform.
The Government has released the Response alongside their Australian Data Strategy, of which the CDR regime is an important cornerstone. The Australian Data Strategy sets Australia's vision to become a modern data-driven society by 2030, and demonstrates the government's focus on enabling the flow of valuable data in a way in which consumers benefit from and are protected.
Off the back of its Response, the Government will be commencing additional consultations with industry in the new year, which will continue until June 2022. These consultations will provide an opportunity for all interested and involved in the CDR regime to develop and provide feedback on the actual mechanisms of Action Initiation and Payment Initiation, along with the implementation of the other recommendations accepted in the Response.
We expect that new legislation implementing the accepted recommendations will likely come into effect very quickly given the speed in which previous updates to the CDR Rules were released. These changes will undoubtedly generate a multitude of opportunities for those prepared for them. On the other hand, they could also significantly disrupt the positions of current market leaders if they do not appreciate the importance and significance of the regime's expansion.
We encourage participation in the Government's consultations. We will provide further updates regarding the recommendations as and when the Government's consultation papers are released. In the meantime, if you feel any of these changes could impact your business, feel free to contact us for assistance.