Regulators will have to ensure that firms can show not only show how data was gathered or stored, but why it was important in the first place, according to Financial Conduct Authority boss Nikhil Rathi.
Speaking at the Authority for the Financial Markets 20th anniversary seminar last week (June 16), CEO Rathi said there will need to be more cooperation between regulators across borders and industries.
“International coordination in this area is becoming increasingly important – both in terms of effectively protecting consumers from the increased risks of digitalisation and from gamification across the provision of financial services,” he said.
“Casting our minds forwards, it seems that coders could become the designers of society. They may have to become not just engineers but philosophers, deciding moral questions.
“And artificial intelligence, if implemented by machine learning, could have the same implicit biases that humans have.”
Rathi explained that the policy challenge for the future will be about complexity and breadth, both in the AI and data space.
He said rules will cover multiple areas including financial services, data protection, labour law and competition policy.
“Regulators will have to ensure that firms can show not just how this data was gathered or stored or used, but why it was decided it was important in the first place and how they avoid it being used to discriminate against minorities and people with other protected characteristics,” he said.
“That’s why we have to create diversity of thought in our culture and in our organisations so we can have a fighting chance of pre-empting multiple and competing interests.”
He said “undoubtedly” regulators like the AFM and FCA will face their next 20 years regulating much more data.
“Regulators have to invest in the digital skills – and the right people – to keep pace with these developments. We are doing that at the FCA, with a further £34mn being invested in the next year and the recruitment of 100 more data experts.”
He urged that the FCA will be committed to ensuring our regulation does not stifle innovation or dramatically add to the burden as otherwise it will be customers who will bear the costs.
Data and AI
Rathi also argued that digital developments can also help mitigate risk.
He said the FCA’s regtech systems monitor transactions and spot outliers that could suggest fraudulent behaviour.
“We are already working on automated systems for our threshold permissions,” he said.
“And our organisation has moved to the cloud and revolutionised the ease with which we can access vital data to prevent financial crime and protect consumers.”
Rathi said the regulator has migrated more than 52,000 firms and 120,000 users to its reg data platform.
He explained the disclosures it requires on environmental, social and governance (ESG) products are already breaking new ground and the FCA is partnering with other regulators to share its experience.
"More data will give customers more power to choose products with better ESG ratings," he said.