"Drivers of change in the financial services industry and how we are responding" - Speech by Jessica Rusu, Chief Data, Information and Intelligence Officer, at the CDO Exchange for Financial Services

"The Financial Service industry has undergone a data-driven revolution in recent years – transforming the kinds of products and opportunities available; how firms offer services and interact with customers; as well as how risks are qualified, and decisions made.

As the Chief Data, Information and Intelligence Officer, my role is to build the digital regulatory future of the Financial Conduct Authority whilst expanding and protecting the intelligence and data assets we hold.

A data-driven industry needs a data-led regulator – a regulator which understands how data is used and leverages the same techniques as in industry to prevent harm, tackle poor practice, and support innovation and growth – enabling financial services to be the best they can be. 

Data is also central to our own transformation as an organisation. The innovative use of data and technology increases our ability to act decisively – because when collected and interpreted in the right way, it gives us greater insights, more quickly.

At the same time, we’re determined to become a more assertive regulator – testing the limits of our powers; a more adaptive regulator – constantly learning and adjusting in response to changes in consumer behaviour and market evolution; and a more accountable regulator – clearer about what we’re doing, why we’re doing it, and what difference we are making.

Together, these changes will help us become the forward-looking, proactive regulator that the industry, the economy, and the country needs. This is the only way we can rise to the challenges ahead of us: the demands of building a new regulatory regime after Brexit; the shift to a net zero economy and the ongoing effects of the pandemic.

How the threat landscape has shifted for consumers

Fraudsters and scammers are also benefitting from new technologies.

Cryptocurrencies are a great example. Although crypto provides a potential area of benefit for firms in terms of improving efficiencies and driving down costs – it also provides a serious potential for exploitation and harm.

New kinds of consumers are being drawn to these markets – and their reasons aren’t always conventional or rational. Our recent surveys suggest more than three quarters of people investing in high risk products are motivated by competition with friends, family and acquaintances. And more than half say that hype on social media and the news drove their decisions. Influencers on Youtube, Instagram and TikTok are having a growing impact on younger investors in particular.  

It’s also clear that some of these investors don’t necessarily understand the risks they’re taking. In fact, the majority of people who’ve bought forex or crypto don’t understand that these are unregulated and unprotected.

Therefore, cryptocurrencies continue to be high risk for consumers, highly volatile for markets, and highly likely to be used in financial crime.

Data and digital approaches for protecting consumers

We have been focusing our efforts to protect customers in three ways.

First, as well as warning consumers about the risks involved through traditional strategies – like publishing a list of unregistered businesses - we’ve been educating consumers with our Scam Smart and InvestSmart campaigns: reminding them to  fully understand what they’re getting into and to appreciate the risks involved.

Social media, both a risk and an opportunity

Second, we’ve been engaging with social media platforms: ensuring they are complying with laws that prevent communication of unregulated investments. Search engines and social media have to comply with laws on scam advertising just like newspapers and television channels.  And we’re pushing to make the laws themselves more robust – which is why we want to see the proposed Online Safety Bill clamp down on scams being promoted through digital adverts and websites.

Third, our digital listening tools help us collect data on everything from mortgages and investments to fraud and scams. These help us understand consumer concerns and business challenges. For example, listening to discussions on social media showed the difficulties in the insurance markets during the pandemic. Consumers were finding it hard to get insurance companies to pay out, while firms were finding they couldn’t claim for business interruptions. All of this was hugely disruptive.

Our intelligence helped us act swiftly and decisively. Our legal action won businesses more than three quarters of a billion pounds for losses relating to covid. And our guidance responded directly to the concerns that consumers were raising. It’s a great illustration of early insight informing a robust response.

A Regulatory Big Data challenge 

And in order to do all this, we have to make the best use of our own resources - connecting the dots in terms of intelligence across the organisation, drawing on strategies and approaches from data science, and leveraging data to create new tools and techniques which allow us to detect harm and intervene more quickly. 

We’re making the most of the data and intelligence we collect to anticipate and predict harm. We regulate over 51 thousand firms – including thousands of small firms – and the data we collect from them helps us to understand, prioritise, and intervene more effectively than ever before. The sheer size of some of our data sets provides us with an extraordinarily rich resource.

For example, over the last five years we collected nearly 17 million pieces of data on the home and car insurance markets. This allowed us to understand firms’ pricing strategies, and the impacts they’ve had on different types of consumers. It also meant we could model the impact of different remedies, so that we could make the most effective and proportionate interventions.

Meanwhile, the scale of the order book data set alone – nearly 100 billion pieces of data and growing all the time - gives us an unprecedented resource for understanding trading behaviours. By leveraging ETL (extract, transform, load) we can see trading across the board, detect where it is being manipulated, and take interventions where we need to.

Connecting these different data sets is helping form new intelligence and prioritise risks.  For example, we are identifying financial advisers most likely to give poor advice by tracking the outcomes from previous supervisory activity.

The Big Data challenge helps us identify new risks, benchmark firms against peers, identify outliers and take action appropriately.  

Our data strategy and the digital unified intelligence environment

This is something we’ll will continue to build on in the months ahead. The digital unified intelligence environment we’re developing will mean we are even better equipped to anticipate harm and protect consumers.

It represents a cutting-edge approach to collecting, storing, and analysing data. It’s a modular technology architecture which will support all the elements of an end-to-end intelligence lifecycle – from data collections products at one end to algorithms which trigger interventions at the other.

Our aim is to define and codify what we call ‘paths to harm’ – the behaviours and events which we know are likely to end in consumer harm or markets failing to function. For example, we know the conditions that might give firms an incentive to pursue aggressive selling practices. And we know the tactics a fraudulent seller might adopt before going on to set up a fraudulent investment programme.

When we have the data in a shape which will let us see when those conditions are being met, we can intervene earlier – before consumers and markets suffer. It will mean a greater focus on prevention than ever before.  

Leveraging advanced analytics and protecting consumers from AI harm

Machine learning and artificial intelligence will only become more important to our work in the coming months and years.

We want to facilitate the broader debate on the risks and ethical questions associated with these tools, as well as exploiting their potential to improve our practices for the benefit of consumers.

We know there is a growing concern about the possible negative effective of artificial intelligence technology – whether that’s concern around privacy and transparency, or manipulation and bias. The acceleration of digital innovation – not just in artificial intelligence, but also the increasing use of Big Data, and the emergence of the internet of things – all raise fundamental questions about the trade-offs between privacy and convenience; as well as concerns about the vast opportunities for cybercrime involving personal data.

That's why we’re collaborating across the industry and with experts to work through the issues involved. How should alternative data should be used? How should existing standards adapt? How do we address bias and embed ethical practice? These are all key questions we need to work through as we develop new approaches to data governance, and fully grasp the implications of understanding personal data as a new asset class.

What we are doing to enable and support innovation

We know that data can do more than simply anticipate and prevent problems. It can also help create a climate in which businesses are able to flourish, thrive and succeed.

London has long been acknowledged as the centre for global finance. But it has also rightly earned a new reputation as the premier location for fintech companies. British fintech firms are revolutionising the global industry in ways which are benefiting consumers, creating jobs, driving growth, and supporting prosperity more widely.

We have a vital role in enabling this sector to achieve its potential and position the UK at the forefront of technological growth. We’re determined to be a progressive and forward-thinking regulator which enables fintech firms to be the best they can be. We want to support business, not just scrutinise it.

One way we are doing this is through our Innovate services. These give both new market entrants and incumbents the chance to test out their ideas in real world scenarios – providing an incubator for the best firms and best products to develop.

The Regulatory Sandbox in particular has proved hugely popular and beneficial. It is now seen as the gold standard and being adopted by regulators around the world. As a result of this success, we’re ensuring that it is ‘always on’, so firms can take advantage of it when it suits them.

This way of working, with collaboration between the industry and regulator, is going to be absolutely critical to meeting the challenges we collectively face together – whether that’s sustainability and climate change, or the ethical questions raised by artificial intelligence technology.

Transforming the FCA data culture and capabilities 

Becoming a data led regulator means profound changes in the way we work at the FCA. For the industry to function at its best, we have to function at our best. We have the highest expectations for business, and we set the same standard for ourselves.

We’re making a huge investment in our own capabilities – the way we collect data, the way we use it, and the way we turn it into interventions at scale. We’ll be saying more about this in a refreshed data strategy soon.

We know that an innovative industry demands an innovative regulator not just keeping pace but leading the way. And building on our recent successes, we’re determined to maintain our position on the cutting edge.

With the people, resources and systems we need to make the most of our intelligence; with a commitment to creativity and inventiveness; and with a determination to work in partnership: we can not only protect but also advance the interests of consumers.  

Because data does not just give us the means to understand the world – but the tools to improve it."