Technology – the pace of change is rapid
Commentary | 07/05/24
Developments in technology have been back in the news in recent weeks. Open Banking, the use of data and AI have all received mentions.
Though they offer exciting possibilities, these new developments need to be balanced with the appropriate checks. We are all aware of the potential unintended consequences and the lag that can occur between innovation and necessary regulation.
Taken with the importance of protecting the customer and their data, it is not surprising that we have seen the FCA sharing its views on these topics.
Firstly, the regulator published its Feedback Statement on potential competition impacts from the data asymmetry between Big Tech firms and firms in financial services. In its overarching strategy, the FCA is committed to identifying potential competition benefits and harms from the Big Tech firms’ growing presence in financial services, hence its research in this area.
One area of concern was that the asymmetry of data between Big Tech firms and financial services firms could have significant adverse implications for how competition develops in the future.
However, so far, the regulator has found that no significant harms have arisen from data asymmetry, while they work on starting to develop a regulatory framework that enables increased competition and innovation.
The FCA will continue monitoring Big Tech firms’ activities in financial services. Depending on the outcome of this monitoring, the FCA plans to develop proposals for consideration in the future. Firms should also be following developments.
Elsewhere we saw an update on AI from the regulator. This followed the Government’s response to its White Paper: A Pro-Innovation Approach to AI Regulation which noted the rapid growth in the use of AI and the need to develop a pro-innovation regulatory framework.
The FCA has said that it wants to promote the safe and responsible use of AI in UK financial markets and leverage AI in a way that drives beneficial innovation. Their focus is on how firms can safely and responsibly adopt the technology as well as understanding what impact AI innovations are having on consumers and markets.
Interestingly, the FCA has also talked about the role AI may play in regulating the financial sector. For example, it could help identify fraud and bad actors. The FCA plans to invest in technologies to monitor regulated markets.
Finally, there was a speech from Nikhil Rathi, FCA Chief Executive, which picked up a lot of these themes. He talked about the need to lead a co-ordinated and effective effort to make the most of the opportunities of Big Tech – whilst mitigating the risks. He said the FCA needs to remain vigilant about data asymmetry or risk putting off incumbents and innovators from retail financial services.
Rathi mentioned that the FCA is examining the case for developing a commercially viable framework for data sharing in Open Banking and finance. Open Banking remains a central focus for future development in financial services.
Through all these developments you can see that the FCA is keen to embrace new technology whilst making sure there are appropriate controls around its use. Rathi has spoken about the need for collaboration, with industry to make sure their approach is proportionate and supports innovation.
Firms need to keep connected to the latest developments with their customer base in mind. The pace of change is rapid but if new technology ultimately helps to better serve customers, firms will want to be ready to embrace future developments.