BIS launches project to connect open finance infrastructures across borders

An ambitious international initiative aiming to connect domestic open finance infrastructures of different jurisdictions has been launched this week by the Bank for International Settlements (BIS).

The initiative, which has been called ‘Project Aperta’, is to explore how to reduce ‘frictions and costs in global finance by enabling seamless cross-border data portability’, a project page on the BIS website (made live on 16 October) reveals.

It is a collaboration between the BIS Innovation Hub’s Hong Kong centre, the Central Bank of the United Arab Emirates (UAE), Banco Central do Brasil, the UK’s Financial Conduct Authority (FCA), Hong Kong Monetary Authority, Global Legal Entity Identifier Foundation, International Chamber of Commerce Digital Standards Initiative and Hong Kong University Standard Chartered Foundation FinTech Academy.

The project (whose name owes to the Latin word for ‘open’) is announced as a growing number of governments worldwide look to bring in rules to facilitate data portability. Stated objectives in respect of consumer financial data typically include facilitating people to ‘shop around’ among competing service providers.

But nations are moving at different speeds, and in different ways, in developing governance frameworks for data portability, including open finance. Project Aperta’s focus on international considerations brings a fresh twist.

OPEN FINANCE: EXPLAINED Open finance is being encouraged by a growing number of governments worldwide as a means of boosting innovation and competition in financial services. A broader concept than open banking, it is a reference to users sharing their financial data with third-parties. ‘Open’ refers to open APIs: software intermediaries that allow two machines to interact.

Trade finance for SMEs in focus

The initial use case to be explored during Project Aperta is in trade finance for small and medium-sized enterprises (SMEs), with ‘many more applications to follow’, according to the BIS website.

‘Businesses engaged in trade finance face numerous challenges when using financial products that facilitate trade, such as letters of credit, trade credit insurance and supply chain financing,’ the webpage reads. ‘Processes are often inefficient and costly due to excessive manual paperwork and a lack of digital data portability. Digitalising trade finance can promote sustainable economic growth and support financial stability, contributing to the overall resilience of the global financial system.’

The BIS states that about 70 jurisdictions currently regulate open finance through ‘various approaches’, pointing out that these open finance ecosystems often operate with differing domestic standards and protocols, preventing the smooth flow of data across borders. ‘But technologies based on proven APIs have the potential to significantly enhance cross-border data portability via these existing ecosystems, as the true value lies in facilitating international data flows,’ BIS states.

BIS points out that some jurisdictions (particularly in Asia) have started to addressing cross-border data portability through bilateral arrangements, but states that this ‘risks causing fragmentation in scope, standards and solutions’. It adds that ‘this fragmentation, in turn, reduces interoperability and scalability while increasing overall complexity’.

Project Aperta ‘could play a pivotal role in bridging the gap’, BIS, whose headquarters are in Switzerland, states.

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‘Mutual trust across borders’

Aperta involves the development of a prototype of a multilateral cross-border interoperability network connecting the open finance infrastructures of different jurisdictions, ‘enabling consumer-consented, safe, secure and end-to-end encrypted financial data to be shared via APIs’, the BIS project webpage states.  

‘This allows financial institutions and third-party providers to establish mutual trust across borders and exchange data within an end-to-end trusted environment,’ BIS explains.

It will provide an innovative mechanism for global interoperability, offering harmonised features, functionalities, use cases, security protocols, operating procedures and trust frameworks for open finance across jurisdictions.

Brazil, Hong Kong SAR, UAE and UK are described as participating jurisdictions in the ‘current phase’. The nations’ approaches to open finance range from regulatory-led to hybrid to market-led, BIS acknowledges.

In the UK an Open Banking Implementation Entity (OBIE) was established in 2016 to get open banking off the ground. But governance arrangements for open finance – open banking’s broader sibling concept – are unconfirmed. Numerous panel discussions at a two-day industry focused event in London this week (‘Open Banking Expo’: 15-16 October) attended by Global Government Fintech featured speakers warning that the country’s leadership status in open banking seems increasingly unlikely to be replicated in open finance. The UK’s City minister, Tulip Siddiq, told a different London conference last week (10 October) that the UK was “in a global race to develop a ‘smart data’ economy”.

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Seeking ‘seamless’ connections

The multilateral nature of Project Aperta will enable a licensed third-party provider – such as a bank, fintech company or other financial institution – in one jurisdiction to ‘seamlessly’ connect with third-party providers in other jurisdictions, BIS states.

With a nod to the first use case, BIS explains that the aim is to facilitate the exchange of information such as payment and account data, letters of credit or electronic bills of lading.

The prototype will enable cross-border portability of: a consumer’s (bank) account and business data to a bank abroad to open a new account there ‘significantly faster’; and trade finance data related to shipping to ‘significantly reduce the cost and increase the speed of international trade’.

The project is running alongside other cross-border BIS Innovation Hub initiatives such as ‘Project Nexus’, a multi-party initiative to super-charge the speed of payments across the globe via similarly ‘seamless’ (payments system) connections. Nexus is designed to standardise the way domestic instant payment systems (IPS) connect to one another. Rather than an IPS operator building custom connections for every new country to which it connects, the operator only needs to make one connection to Nexus.

The BIS and partner central banks announced in July this year that they had completed phase three of the project and developed a ‘comprehensive blueprint’ for ready participants to progress towards linking their domestic systems. It is the first BIS Innovation Hub project in the payments area to move towards ‘live implementation’. BIS’s general manager Agustín Carstens has hailed its potential to ‘connect a market of 1.7 billion people globally, allowing them to make instant payments to each other easily and cheaply’.

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Getting up to standard(s)

The International Chamber of Commerce Digital Standards Initiative is a global initiative based in Singapore, backed by an international governance board comprising leaders from the International Chamber of Commerce (ICC) itself, as well as Enterprise Singapore, Asian Development Bank, World Trade Organisation and World Customs Organisation.

It aims to ‘accelerate the development of a globally harmonised, digitalised trade environment’ working with the public sector to progress regulatory and institutional reform and ‘mobilising’ the private sector on standards harmonisation, adoption and capacity building.​

Just last month a new ICC Digital Standards Initiative collection of case studies was published that aims to help governments and businesses seeking to digitalise trade. Twenty-two case studies in its ‘Key Trade Documents and Data Elements on the Frontlines’ report cover both private and public sector actions. Global trade is ‘on the cusp of a transformation driven by digitalisation, where the physical flow of goods and finance are tracked and transacted through a similarly connected flow of data and electronic records,’ according to the 76-page report.

The case studies ‘loosely build’ on a 38-page Key Trade Documents and Data Elements (KTDDE) Framework document, launched six months ago (April 2024), which proposed a unified approach to aligning data across key trade documents, to promote interoperability and data sharing.  

The Global Legal Entity Identifier Foundation is a Switzerland-headquartered accreditation organisation created by the Financial Stability Board in 2014. It is a not-for-profit organisation tasked to manage the only open, non-proprietary legal entity identification system designed as a public good.

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