Application programming interfaces (APIs) play a crucial role in modern business, particularly for banks, retailers, and global enterprises, by streamlining financial data transfers. In the financial industry, APIs offer significant advantages, such as reducing IT complexity and simplifying processes for financial transactions. However, as financial organizations increasingly rely on APIs, they must also ensure compliance with regulatory standards.
CFPB 1033’s Impact on Open Banking and APIs
The Consumer Financial Protection Bureau (CFPB) has recently passed rule 1033 which will grant consumers the right to access their financial data held by financial institutions, promoting transparency and consumer control over personal financial information. The rule, which organizations must comply with by April 2026, will also allow consumers to share their financial information with third parties, such as budgeting apps, payment services, or financial advisors.
To make sure financial information flows freely across the U.S., open banking interfaces must be highly available, demonstrating uptime (where the API is accessible and operational) of at least 99.5% of each month. In addition, open banking APIs need to be fast. The rule does not specify exactly how fast open banking APIs need to respond; instead, they say that speed of response will be determined by looking at the speeds of the entire industry, as a “consensus standard.”Comparing each bank against the consensus standard will allow the entire banking ecosystem to improve, and make all open banking transactions faster for everyone over time.
There are also strong security and privacy rules, to ensure consumer financial data is protected. Banks and third parties that access this data must demonstrate that they are using secure transmission protocols, and their data requests can be denied or blocked if they do not demonstrate appropriate security. Indeed, the CFPB 1033 rules will impact how banks and financial technology companies develop and manage APIs, as they must ensure all APIs align with new regulatory requirements for data quality, security, and interoperability, all to protect consumer rights.
Learning from Open Banking in the UK
In the UK, current open banking regulations require industry regulators to be notified if APIs encounter issues. Notifications are mandated, for example, if an API deviates from its intended specification, provides inaccurate data, or fails to deliver information in the correct format.
The UK has long led the open banking movement, with regulations in place from 2018. The transaction volumes through Open Banking protocols are growing quickly, and are now utilized by over 11% of UK consumers. Payments APIs, which securely transmit financial information from a device to the internet, and ultimately, to the bank for settlement, have become increasingly robust and reliable. This pioneering approach has set the foundations for API best practices that many other regions are now adopting to develop similar frameworks.
Both the UK and the US open banking rules have requirements for public reporting of compliance. But one area where CFPB have expanded the regulatory framework is in requiring a minimum performance standard. The goal is to ensure that APIs are performant, so they can be reliably built into payments infrastructure to speed transaction flows.
Getting API Security Right
Securing APIs is essential as the number of exposed APIs grows, expanding the potential attack surface. Poorly designed or inadequately maintained APIs can introduce vulnerabilities, heightening the risk of exploitation. In the financial secretary, security for transactions is paramount, with many organizations adopting advanced OAuth2.0 or the Financial-grade API (FAPI) as their standards for API security.
To ensure compliance throughout the entire lifecycle of an API – not just during its initial deployment – regulatory reporting requirements have been implemented. For instance, in the UK, organizations must submit annual API reports and report any breaches immediately. The U.S. rule requires 13 months of reporting to be publicly available, updated at least monthly.
Meeting Compliance Expectations
To meet API compliance requirements, all businesses need to establish effective monitoring systems for their APIs to meet industry standards, particularly within the specific regions where they operate. For companies without the right tools, tracking API compliance can be a slow, labour-intensive process often involving manual steps. In addition, proactive security and governance of APIs are essential for the sustained success of open banking; without these, businesses may encounter issues with regulators and standardization bodies.
To overcome these challenges, companies should put rigorous controls in place for their API services, including real-time and automated monitoring, access management, testing, and governance checks. Taking a comprehensive approach allows for complete visibility into API performance, enabling early identification and resolution of potential service disruptions, security risks, or compliance issues before they are noticed.
Ongoing API testing and monitoring are also critical to maintaining compliance and preventing API drift, where APIs diverge from their intended framework over time. Recent studies show that 75% of tested APIs had endpoints that didn’t conform to standards, highlighting the need for continuous oversight. By using tools that consistently test for compliance and monitor API behaviour in real-time, organizations can mitigate security risks and maintain reliable service.
Ultimately, as more regulations like the rule 1033 are enacted, this marks a significant shift in the regulation of financial data access and privacy, with API performance and monitoring at the heart. Indeed, we already see other industries following this path, meaning every organization should take appropriate steps to align with data-sharing requirements, to ensure compliance with privacy and security.
