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The UK Financial Conduct Authority (FCA) is using machine learning and artificial intelligence to identify patterns that can result in consumer harm as it transforms the regulator’s data culture and capabilities, Jessica Rusu, FCA chief data, information and intelligence officer, said in a speech.
Speaking at the CDO Exchange for Financial Services, Rusu said that her agency is transforming its data culture to respond to the “data-driven revolution” the financial services industry has gone through in recent years.
“A data-driven industry needs a data-led regulator,” she stressed.
Big data, AI and ML
The FCA is using various tools to counter attempts by fraudsters and scammers to defraud consumers through the use of new technologies.
It educates consumers, engages in talks with market participants and it has been increasingly relying on big data “to identify new risks, benchmark firms against peers, identify outliers and take action appropriately”, Rusu said.
As a regulator of more than 51,000 firms, the FCA receives a vast amount of data each year.
“For example, over the last five years we collected nearly 17 million pieces of data on the home and car insurance markets” and “nearly 100 billion pieces of [order book] data and growing all the time”, the data officer said.
To connect the dots in terms of intelligence across the organisation, the FCA has started to build a “digital unified intelligence environment” that leverages data to detect harm and intervene more quickly.
“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,” Rusu said. She noted that machine learning (ML) and artificial intelligence (AI) “will only become more important” to the FCA’s work in the coming months and years.
The regulator hopes the new technology will help them define and codify “paths to harm”, described as behaviours and events that are likely to end in consumer harm or markets failing to function. Through identifying at an early stage, the FCA will be able to intervene to protect consumers and markets.
“It will mean a greater focus on prevention than ever before,” the FCA official stressed.
“Data does not just give us the means to understand the world — but the tools to improve it.”
Online Safety Bill
The FCA has been pushing for strengthening protections for financial services products in the Online Safety Bill, the UK’s version of the European Digital Markets Act, which aims to regulate bigtech platforms.
Chief of their concern is the advertisement of fraudulent crypto investments on social media platforms and digital adverts.
The FCA believes that the same laws on scam advertising should apply to search engines and social media as those that apply to newspapers and television channels.
According to Rusu, more than half of people investing in high-risk products say that hype on social media and the news drove their decisions, with influencers on YouTube, Instagram and TikTok having a growing impact on younger investors. At the same time, FCA studies show that the majority of crypto holders are not aware of the fact that these assets are not regulated nor protected.
“Therefore, cryptocurrencies continue to be high risk for consumers, highly volatile for markets, and highly likely to be used in financial crime,” Rusu said.
Scrutinise and support
Emphasising the importance of London in global finance and fintech innovation, Rusu said her agency plays a “vital role in enabling this sector to achieve its potential and position the UK at the forefront of technological growth”.
“We want to support business, not just scrutinise it,” she said, underscoring that the FCA’s successful regulatory sandbox is always open to innovative businesses.
