The European Banking Authority has published a discussion paper on the innovative uses of 'consumer data' by financial institutions, in line with its desire to monitor financial innovation. The paper identifies risks and benefits for consumers, for financial institutions and for financial integrity in general. The EBA is keen to come up with more rules on the subject.

The paper makes the obvious point that institutions may obtain continuous insight into purchasing habits and preferences, as consumers engage in payment transactions through their accounts or cards. The work of the EBA focuses on the use of 'consumer data,' as it calls it, in the banking sector.
 
Potential benefits to consumers include cost reductions and products of higher quality, while financial institutions can benefit from new sources of revenue and lower costs. The EBA is worried about risks for consumers, which it lists as "information asymmetries, and data misuse and security." It wants to look into the possibility of data usage not being properly described or updated in the contract documents that financial institutions provide as well as the likelihood that consumers do notnot understand the documents that tell them who might be using their data and how.
 
The questionable use of consumer data, the EBA feels, may expose institutions to reputational risks, while competitive distortions may emerge as institutions that cannot process 'consumer data' may not be able to compete with new market entrants that specialise in its use. This last worry seems to betray an alarming urge in the EBA to halt the progress of market development by means of capitalism, something for which the European Union, rightly or wrongly, is famed. It is also worried about financial institutions being sued if their IT and storage systems are compromised.

The deadline for the submission of comments is 4 August. Under Article 9 of its founding Regulation, the EBA is mandated to "monitor new and existing financial activities", "adopt guidelines and recommendations with a view to promoting the safety and soundness of markets and convergence of regulatory practice", and to "bring together all relevant Competent National supervisory authorities with a view to achieving a coordinated approach to the regulatory and supervisory treatment of new or innovative financial activities".