‘Game changing’ action initiation CDR legislation introduced

A new bill has been introduced into Parliament that will amend the Competition and Consumer Act 2010 to expand the open banking ecosystem to enable consumers and small businesses to instruct accredited third parties to initiate CDR‑powered actions with their consent and on their behalf.

It would enable consumers to initiate regular payments towards savings or investment goals, automatically move funds to optimise interest or minimise fees from their financial services provider, or find and switch to a utility plan better suited to their circumstances.

The change could also help reduce frictions when it comes to refinancing, as banks would be legally required to undertake instructions provided by the consumer under the CDR regime to transfer banking products to another institution. For example, if a consumer instructed a business it has engaged to perform a service of transferring a range of banking products from one lender to another, the law would require those instructions to be followed by the bank as if the consumer had given the instructions to them directly.

It would prevent action service providers from “discriminating against a valid action request” that came through the CDR, according to Treasury.

The Assistant Treasurer and Financial Services Minister, Stephen Jones MP, explained it thus: “If request A and request B came to a bank, requiring them to move a product or service from your bank to another bank, and one of those requests came from a CDR action initiator and another came, let’s say, from a mortgage broker, it would be unlawful for the bank to prioritise the mortgage broker or another direct channel over a request coming from a CDR intermediary.”

The move aims to enhance competition and, thus enhancing competition and mobility in the banking sector and other financial services and in energy as well.

How the CDR regime is being amended

Currently, under the Consumer Data Right (CDR), consumers can grant permission for accredited or authorised users to share their financial (and energy) information.

However, draft legislation was released earlier this year to enable consumers and small businesses to take their data‑sharing rights “one step further” by initiating actions like opening and closing accounts, making payments, and applying for services through the CDR. 

The Treasury Laws Amendment (Consumer Data Right) Bill 2022 has now been introduced into Parliament and read a second time, giving effect to the key recommendations of the inquiry into the Future Directions For The Consumer Data Right to move ahead to enable action initiation.

The bill also enables the government the ability to require existing data holders (such as banks, energy companies, or energy retailers) to become action service providers in the CDR, meaning that they would have to perform actions in accordance with valid instructions received from third-party accredited action initiators as if they came directly from the consumer.

There will also be flexibility for other organisations to apply so that they can participate voluntarily in CDR action initiation, as long as they undertake the “appropriate safeguards”.

For example, accredited action initiators would need to meet strict accreditation requirements that are set by the rules and be required to act efficiently, honestly, and fairly when initiating actions.

Removing the ‘bank book tax’ problem

During the second reading, Assistant Treasurer and Financial Services Minister, Mr Jones, commented: “Until the introduction of a Consumer Data Right there wasn’t a mechanism for consumers to have access to their data and use it for their own purposes. This bill will change that...

“This bill will amend the Competition and Consumer Act 2010 to expand the consumer data right to enable action initiation, a functionality which will empower consumers to authorise, manage and facilitate actions securely in a digital environment,” noting that consumers can use their data for things like “switching service providers, taking out a loan, applying for a new mortgage or using budgeting apps to help manage finances”. 

“This bill delivers the power of action initiation to the CDR. That means consumers and small businesses will be able to securely instruct a third party — these will be known as accredited action initiators — to carry out everyday tasks on their behalf...

“This bill will enable a consumer to go to a single service provider and say: ‘Please update all of my accounts.’ That is of great benefit to consumers and will enhance competition, because it removes one of the friction points for a consumer — a consumer saying: ‘I can’t move from one account to another, or from one service provider to another, because it’s just too damn hard.’”

Mr Jones flagged that this would reduce instances of consumers being ‘stuck’ with a particular financial institution due to the “bank book tax”.

He suggested that this tax related to a “stickiness once someone has taken on an account with a banking institution with multiple services provided by that bank” because it is “just too damn hard to switch providers”.

“CDR is a game changer in this regard. Action initiation is a game changer in this regard,” he said.

As well as providing better portability, the Assistant Treasurer and Financial Services Minister added that the government hoped the new changes would help support a range of innovative (and heretofore unforeseen) business models.

The Assistant Treasurer explained: “In the same way that we could not have imagined things called apps when the smartphone was invented, we can’t today imagine some of the innovations and new business models that will be enabled through the initiation of the consumer data right and the initiation powers that will be brought forward in this bill. 

“We do know that it’s going to offer entirely new ways of doing things, boost competition and reduce time pressures on time poor individuals and the costs and complexity experienced by consumers and small businesses when they are carrying out everyday tasks.

“The CDR is already providing benefits to Australians by giving them the ability to safely share the data businesses hold about them for their own benefit.

“This legislation will power‑up the CDR to bring even bigger benefits to those who chose to use it.”

The change to the CDR regime comes as the ecosystem is widened to also bring non-bank lenders under its remit.

The draft designation instrument proposes non-banks that provide a minimum of $50 million of annual financing to be covered.

[Related: Mortgage competition enhanced with non-bank CDR inclusion]