Smart data - the future of data and how the Government is legislating on compulsory participation

Posted: 16/09/2020

On 9 September 2020 the Government published the response to its Smart Data Review, see here, which sets out plans to introduce primary legislation to mandate industry involvement in Smart Data initiatives across multiple industries including communications such as telephone and broadband, energy and finance.

The Government also intends to launch a cross-sector Smart Data working group to co-ordinate existing Smart Data initiatives across regulators and Government.

The Review was launched in June 2019 to consult on taking Smart Data beyond the banking sector, see here. Responses were received from the technology, energy, communications and financial sectors, as well as from charities and academia.

What is Smart Data?

The Government defines Smart Data as “the secure and consented sharing of customer data with authorised third party providers (TPP). These providers then use this data to provide innovative services for the consumer or business, such as automatic switching and account management.”

The best example of a Smart Data initiative is Open Banking where UK-regulated banks have to give customers the option to allow access and control of their personal and financial data to TPPs. Building on the UK’s leading fintech sector, Open Banking is being used in services from budgeting for consumers to invoicing for SMEs. The Government paper states there are over a million individual and SME users of Open Banking in the UK and more than 250 TPPs and account providers.

Existing Smart Data initiatives

The Open Banking Implementation Entity (OBIE) is a private body created by the Competition and Markets Authority (CMA) to deliver the Application Programming Interfaces (APIs), data structures and security architecture that will make it easy and safe for individuals and SMEs to share the financial information held by their banks with third parties.

The OBIE estimates the potential annual benefit from Open Banking at £12 billion for consumers and £6 billion for SMEs users. Current examples include:

• viewing multiple bank accounts in a single app, this is integrated into most high-street banking apps
• Fronted and Credit Kudos streamline housing affordability checks
• Canopy offers a deposit-free renting service
• Monzo has removed the need to enter banking credentials when making transfers
• Circuit connects financial auditors directly to business bank accounts and Ember offers streamlined accounting services
• Kalegra alerts a trusted contact if there is unusual activity on an account.

Similar services are envisaged to emerge across other sectors but, without the secure Smart Data infrastructure and standards, they rely on riskier methods such as password sharing and screenscraping. The Government paper recognises the need for co-ordination across initiatives to ensure that standards are developed for designing and developing mechanisms for consent and accreditation to ensure data is only shared with the customer’s permission and with TPPs.

Possible uses for Smart Data include:

• communications: improved product comparison, viewing all your bills in one place and easier management across accounts
• energy: automatic switching services to ensure customers get the best deals
• finance: see above but also to help consumers navigate and manage their savings, mortgages, consumer credit, investments, pensions and insurance
• retail: enabling consumers to find better deals for items in the weekly grocery shop.

Consultation summary

Delivering Smart Data across sectors

Respondents to the consultation supported the principle of Smart Data. They also supported a new Open Communications initiative which has subsequently been launched by Ofcom in addition to the existing energy, finance and pensions initiatives.

Respondents advocated Smart Data in education, retail, transport and health. For example, if introduced in the education sector, an initiative could enable individuals to view all past education records and easily pass this information to a prospective employer.

Legislating to mandate participation

The Smart Data Review consulted on and respondents were in favour of a proposal to legislate to mandate firms’ participation in an ‘Open Communications’ initiative and to give Government the power to introduce Smart Data initiatives in any other market.

These are logical recommendations as successful implementation of Smart Data initiatives requires participation by the firms that hold consumers’ data who may be unwilling to participate. Unsurprisingly, some respondents wanted more time for voluntary approaches to develop first.

The General Data Protection Regulation (GDPR) already provides the “right to consumer data” and there are existing statutory powers which could be used to mandate that firms participate in sharing consumer data. However, these laws do not provide sufficient safeguards and do not include the sharing of product data or the requirement for TPPs to be accredited.

As a result of the review, the Government is planning to introduce primary legislation to mandate industry involvement in Smart Data initiatives. Initially, this legislation will cover communications and other regulated sectors but will also facilitate the extension of Smart Data to other sectors like retail and transport. Primary legislation to mandate industry participation in pensions dashboards has already begun.

Cross-sector oversight

Respondents agreed that the Government should increase co-ordination across sectors. Most respondents welcomed a proposed cross-sector body called the Smart Data Function (SDF) as a way to increase such co-ordination. The importance of sector-specific expertise in the SDF was also raised, specifically in relation to price and non-price competition in a sector.

Following the review, the Government is now launching a Department for Business, Energy & Industrial Strategy (BEIS)-led Smart Data working group. The group will involve representatives from BEIS, DCMS, HMT, DWP, Ofgem, Ofcom, the FCA, the CMA, the UK Regulators Network and the ICO as an observer.

The working group will consider key aspects of Smart Data initiatives set out in the consultation in more detail, including accreditation, authentication, consent and liability and will build on the responses received. Funding and form for the implementation of interoperable Smart Data initiatives will be considered in more detail following the working group’s initial recommendations.

Consumer protection and vulnerable consumers

While defining ‘vulnerability’ across sectors is difficult, respondents welcomed the review’s emphasis on making sure that Smart Data benefits vulnerable consumers. Providing a clear liability framework for any data loss or misuse was stated by numerous respondents as a key part of both protecting consumers and building trust.

Transparency and control over data were also highlighted as important principles for promoting engagement. In this regard, respondents noted a need for adaptive regulation that can keep up with the fast-moving tech environment.

Respondents also suggested that the accreditation requirements for TPPs should be proportionate to the level of risk in the data they wish to access. Several respondents suggested a tiered approach to accreditation based on the level of risk. It will be interesting to see what system the Government decides to adopt.

Suggestions to improve outcomes for vulnerable consumers through Smart Data initiatives included:

• formal sharing of best practices between initiatives
• targeted monitoring of vulnerable consumers’ participation in initiatives
• ensuring Smart Data-led products and services are designed as accessible by default.

Digital markets

The paper notes the need for clarity between Smart Data and wider policy. The Smart Data Review highlighted the potential benefits of Smart Data in digital markets such as social media, online marketplaces and app stores. The Digital Markets Taskforce, which was housed in the CMA in March 2020, and the Smart Data working group will co-operate to explore future links between Smart Data and digital markets.

National Data Strategy

On 9 September 2020, the Government also published its National Data Strategy (NDS), see here. The NDS sets out a framework on how the Government wants to utilise data and meet its five priority missions. A subsequent consultation process to help shape the strategy will be concluded on 2 December 2020.

The two key takeaways so far are that the Government intends to recruit a Chief Data Officer to lead its approach and is also launching a £2.6 million programme to help companies to develop AI-based solutions to tackle online harm.

In summary

• The Government’s response to the Smart Data Review published on 9 September 2020 announced the next steps on cross-sector Smart Data work.
• Primary legislation will be introduced to extend the Government’s powers to mandate participation in Smart Data initiatives.
• The Government will launch a cross-sectoral Smart Data working group to coordinate and accelerate existing Smart Data initiatives.
• The focus of the legislation and Smart Data working group will initially be on the communications, energy and finance sectors with the aim to inform the development of high-quality standards, co-ordination and regulation in the long term, as well as focus on vulnerable consumers.
• The Government intends to recruit a Chief Data Officer to lead its approach to data.

This article has been co-written with James Mitchell, a trainee solicitor in the commercial dispute resolution team.

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