Financial Data Governance: The Datafication of Finance, the Rise of Open Banking and the End of the Data Centralization Paradigm

Abstract

Finance is one of the most digitalized, globalized, and regulated sectors of the economy. Traditionally technology-intensive, the financial industry has been at the forefront of digital transformation. Starting from the dematerialization of financial assets and culminating in the post-2008 Global Financial Crisis era of FinTech, the integration of finance and a range of new technologies triggered a process of radical digitalization. Data is no longer just the lynchpin of finance; finance is data. Financial transactions are transfers of data, financial infrastructures, such as stock exchanges and payment systems, are data networks; and financial institutions, like banks and other intermediaries, are data processors – gathering, analyzing, and trading the data generated by their customers.

Financial regulation has been forced to adapt to financial digitalization. In parallel, new sets of rules and principles have been developed to assert sovereignty over the digital world. These rules are increasingly enveloping all critical societal functions, from privacy, to national security. Though emerging regulatory regimes pertaining to financial activities and general data governance rules increasingly intersect, their relationship often remains unclear. This paper builds a framework of analysis to address the datafication of finance.

First, we define the notion of financial data governance as an heterogenous system of rules and principles concerned with financial data, digital finance, and related digital infrastructure. To explain how legal and regulatory regimes interact with the digitalization of finance, we consider emerging key financial data governance components in the European Union, People’s Republic of China, India, and the United States. In this context, the relationship between general data governance, financial regulation, and Open Banking reveals different types of linkages defining a set of archetypical financial data governance models.

Second, we examine the challenges affecting financial data governance. As financial information is digitized and financial assets are datafied, finance is inextricably linked to data governance. The coalescence of financial regulation, new regulatory frameworks for digital finance, and general data governance regimes, however, is not always harmonious. Conflicts arising from the intersection of different, and uncoordinated, regimes threaten to frustrate core policy objectives of stability, integrity, and security, as well as the functioning of the global financial system.

In order to address this requires a reconceptualization of the financial data centralization paradigm, both by regulators and by the financial industry.