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Speech by Jessica Rusu, Chief Data, Information and Intelligence Officer, at the CDO Exchange for Financial Services.
Speaker: Jessica Rusu, Chief Data, Information and Intelligence Officer
Event: CDO Exchange for Financial Services
Delivered: 2 November 2021
Note:this is a drafted speech and may differ from the delivered version
Highlights
The Threat Landscape has shifted for consumers, with fraudsters and scammers benefitting from new technologies and new consumers being drawn to high risk markets and products, motivated by competition with friends, family, acquaintances and the influence of social media.
To tackle the challenges faced by consumers and industry, we must 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 have a vital role in enabling the fintech sector to achieve its potential and position the UK at the forefront of technological growth.
TheFinancialServiceindustryhas 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 ashow risks arequalified,and decisions made.
As theChief Data, Information and Intelligence Officer, my role is to build the digital regulatory future of the Financial Conduct Authority whilstexpanding andprotecting the intelligence and data assets we hold.
A data-driven industry needs a data-led regulator – a regulator whichunderstands how data is used and leverages the same techniques as in industryto prevent harm, tackle poor practice, and support innovation and growth – enabling financial services to bethe best they can be.
Data is also central to our own transformation as an organisation. The innovativeuse 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’redetermined to becomea 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; anda more accountableregulator – 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.
Together, these changes will help us become the forward-looking, proactive regulator that the industry, the economy, and the country needs.This isthe 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 economyandthe ongoing effects of the pandemic.
How the threat landscape has shifted for consumers
Fraudsters and scammers arealsobenefittingfrom new technologies.
Cryptocurrenciesare a great example. Althoughcrypto provides a potential area ofbenefit for firms in terms of improving efficiencies and driving down costs –it also provides aserious 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 quartersofpeopleinvesting inhigh riskproducts 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 onYoutube,InstagramandTikTokare having a growing impact onyoungerinvestorsin particular.
It’s alsoclear that some of these investors don’t necessarily understand the risks they’re taking. In fact,the majority ofpeople who’ve bought forex or crypto don’t understand that these are unregulated and unprotected.
Therefore,cryptocurrenciescontinue to behigh risk for consumers, highly volatile for markets, and highly likely to be used in financial crime.
Dataand 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 alist of unregistered businesses– we’ve beeneducating consumers withourScam SmartandInvestSmartcampaigns: reminding themto fullyunderstand what they’re getting into and to appreciate the risks involved.
Social media, both a risk and an opportunity
Second,we’ve beenengaging with social media platforms:ensuring they are complying with laws that prevent communication of unregulated investments.Search engines and social mediahave tocomply with laws on scam advertising justlikenewspapers and televisionchannels. And we’re pushing to make the laws themselves more robust – which is why we want to see the proposedOnline Safety Billclamp down on scams being promoted through digital adverts and websites.
Third, our digitallistening toolshelp us collect data oneverythingfrom mortgages and investments to fraud and scams.Thesehelp us understandconsumer concerns and business challenges. For example, listening to discussions onsocial mediashowed the difficulties in theinsurance marketsduring 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. Allofthis 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.
Our intelligence helped us act swiftly and decisively. Our legal action won businesses more than three quarters of a billion pounds forlosses 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.
ARegulatory Big Data challenge
And in order to do all this, wehave tomake the best use of our own resources– connecting the dots in terms of intelligence across the organisation, drawing on strategies and approaches fromdata 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 thedataand intelligence we collecttoanticipate and predict harm.We regulateover51thousand firms– including thousands of small firms – and thedata 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 nearly17 million pieces of dataon the home and carinsurancemarkets.Thisallowedus to understand firms’ pricing strategies, and the impacts they’ve had on different types of consumers.Italso meant we couldmodel the impact of different remedies, so that we could make the most effective and proportionate interventions.
Meanwhile, the scale of theorder book data setalone– nearly100 billion pieces of dataand growing all the time– gives us an unprecedented resource forunderstanding trading behaviours.By leveragingETL(extract,transform,load)we can see trading across the board, detect where it is being manipulated, andtake interventionswhere we need to.
Connectingthesedifferent data setsis helpingformnewintelligenceand prioritise risks. For example,we areidentifyingfinancial 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 andtake actionappropriately.
Our data strategy and thedigital unified intelligence environment
This is something we’llwill continue to buildon 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 consumerharmor 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 intelligencewill only become more important to our work in the coming months and years.
We wantto 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 artificialintelligencetechnology – 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 thetrade-offs between privacy and convenience; as well as concerns about the vast opportunities for cybercrime involving personal data.
That's why we’recollaborating across the industry and with expertsto work through theissues involved. Howshould alternative data shouldbe 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’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.
We know thatdatacan do more than simply anticipate and prevent problems. It can also help create a climate in whichbusinesses are able to flourish, thrive and succeed.
London has long been acknowledged as the centre for global finance.Butithas 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 aprogressive and forward-thinking regulatorwhich enables fintech firms to be the best theycan be. We want to support business,not just scrutinise it.
One way we are doing this is through ourInnovate 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 todevelop.
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.
TheRegulatorySandboxin particular hasproved hugely popular and beneficial. Itis 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 advantageof itwhen it suits them.
This way of working, with collaboration between the industry and regulator, is going to beabsolutely criticalto meeting the challenges we collectively face together – whether that’ssustainability and climate change, or the ethical questions raised by artificialintelligencetechnology.
Transformingthe 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, wehave tofunction at our best. We have the highest expectations for business, and we set the samestandardfor 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.
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