March 8, 2021

Regulators: From Watchdogs to Drivers of Innovation

Can regulators keep up with the changing landscape?

During the last decade, there has been enormous technological innovation in financial services. The rapid proliferation of FinTech applications has created both a competitive environment for financial services and a risky environment for regulators.

Regulatory authorities have to now ensure public safety while maintaining fair commercial interactions between banks and new FinTech players.

But it’s not easy.

The regulator’s role has changed and there are new dimensions to take into consideration – along with innovation come new responsibilities and new needs to address. As well as safeguarding the market, open banking regulators must carefully design their framework to drive innovation rather than stifle it.

It is clear that regulators have expanded their role from being the ‘watchdog’ of the financial services industry to also becoming major drivers of innovation in their regions.

How the financial regulator’s role has changed

Today, regulators of open banking are:

  • protectors of customer data;
  • mediators between financial institutions and FinTech companies;
  • active promoters of technology;
  • major drivers of innovation.

Financial regulatory authorities around the world are becoming powerful drivers of innovation by adopting open banking paradigms to allow their financial ecosystems flourish.

Over 40 countries have already implemented open banking regulations and, across the globe, regulators are strongly considering data-sharing frameworks for the financial services sector.

  • A MENA FinTech association report surveying central banks and monetary authorities across 18 Arab countries shows that 94% of regulators see themselves as enablers of Open Banking or as innovators of change.

Regulators have embraced their central roles in the innovation ecosystem and are keen to participate in the global open banking movement.


However, regulating open banking comes with its own challenges:

  • there is a fine line between driving and stifling innovation;
  • different regions require different approaches and frameworks;
  • tools and methodology used by cybercriminals evolve quickly, leaving organisations and citizens unprepared and vulnerable to attacks;
  • blurred boundaries between sectors make it difficult to determine who should fall within the scope of a regulatory framework;
  • there’s a growing request for regulators to include Big Tech in their legislations to level the data-sharing playing field;
  • cross-industry collaboration comes with its own challenges.

Safeguarding people and businesses is still the primary objective for regulators. But new technologies and business models have moulded a completely new landscape, which introduces new duties for regulators. Regulators are now obliged to:

  • leave just enough space in regulation for FinTech innovation to flourish;
  • design the framework specifically for your region’s banking and FinTech sector;
  • choose effective Authorisation & Consent mechanisms;
  • stay up-to-date on cybersecurity and open banking trends to avoid falling behind the innovation curve;
  • ensure low-barrier to entry for new market players.

Despite these new responsibilities, regulators recognise the benefits of a regulated, technology-driven financial services landscape. But which path can they take to reach their goal?

4 Approaches to Regulate Open Banking

We’ve identified 4 Open Banking regime models:


  1. The Commander approach (regulated, top-down, hands-on standardisation): the regulator provides the legal and security framework as well as the technical interfaces, which are standardised across banks;
  2. The Architect approach (regulated, top-down, hands-free standardisation): the regulator provides the legal and security framework for the regime but not the technical interfaces;
  3. The Diplomat approach (market-driven, bottom-up, hands-free standardisation): the regulator provides information and guidelines for banks wanting to adopt Open Banking voluntarily;
  4. The Advocate approach (market-driven, bottom-up, hands-on standardisation): the industry provides a standard that is offered for voluntary adoption.

Whether a regulator adopts one approach or another depends on strategic directionregional government policy and localised market conditions. Regulators will have to weigh these factors and decide how to regulate Open Banking in their region. It will take time and there is no shortcut other than consulting with experts.

But there’s something you can do right now.

The Open Banking Canvas

The Open Banking Canvas helps regulators and industry bodies alike to direct and steer successful Open Banking programmes.

It addresses 10 key themes and helps pose critical questions for each.

Save the Open Banking Canvas below and use it to start jotting down your ideas. Then, start a discussion about Open Banking with your colleagues and other industry players.

For further details regarding the Open Banking Canvas or instructions on how to use it, refer to our Regulating Open Banking report.