One of the primary reasons the Financial Conduct Authority invests in technology and innovation is to better support the firms it regulates, according to Jessica Rusu, chief data, information and intelligence officer.
Speaking at the Innovate Finance Global Summit, Rusu said in the past few months, there have been several significant market events, from the collapse of FTX, Silicon Valley Bank and Credit Suisse, to several significant moments in tech, with the release of ChatGPT, the clamp down on TikTok, and most recently the UK government white paper on Artificial Intelligence.
“The use of data and tech continues to transform financial services,” she said.
“We’re transforming too – we're working intensely to leverage data and innovation to protect consumers, enable growth, and transform our operations.”
A few questions Rusu is frequently asked about is:
- how the FCA is reducing firm burden – what it is doing to make it easier for regulated entities to compete and grow in the UK market;
- interoperability – what it is doing to align with other domestic and global regulators; and
- data - what it is doing to exploit the masses of data it collects as well as publicly available data sources.
“As a tech leader, I am convinced more than ever before, that the answers to these questions rest with innovation, AI, and digitally enabled regulation,” she said.
“One of the primary reasons we invest in technology and innovation is to better support the firms we regulate, and our digital transformation programmes are centred on driving efficiencies, better outcomes, and reducing regulatory burden for firms.”
For example, by simplifying the regulatory journey, she explained.
“If you don’t know how to engage with innovation services, we’ve made it simple by providing a single point of entry through our new Digital Front Door, designed to create a seamless firm experience.
“Simply tell us a few things about what you want to achieve, and we’ll triage and ensure you receive the right innovation service.”
To support this, the FCA said it introduced a number of digital tools, including decision trees, and an FAQ digital assistant to match firms with the most appropriate service for their needs, and provide additional guidance to help answer any further questions.
“Secondly, our vision for the Digital Front Door work will continue and goes much further, including numerous technology and data initiatives, such as digitising forms at the gateway, building firm portals within RegData, revamping our website, and evolving our data processing power to simplify the way firms submit data to us,” she said.
Greenwashing
Discussing interoperability, Rusu said the FCA’s work goes beyond domestic applications and includes collaboration with international counterparts.
The Global Financial Innovation Network was launched in 2019 by a group of 23 regulators, committed to helping innovative firms find more efficient ways to interact with regulators across borders.
Since then, GFIN has grown to over 80 international organisations.
In 2021, GFIN identified three key areas of focus: environmental social and governance (ESG), artificial intelligence, and crypto.
Rusu said in line with these commitments, the FCA will be hosting a global TechSprint with its GFIN partners, in support of tackling greenwashing.
“We’re laser focused on this topic because as the demand for ESG-related products and services continues to grow, so does the risk of firms potentially overstating their sustainability credentials to attract customers and investors.”
The FCA wants to ensure that consumers have access to genuinely ‘green’ or sustainable financial products and services.
Scams remain high
Elsewhere, the FCA said the rate of consumer investment scams has not slowed down, despite its work to promote the ScamSmart campaign, and to encourage consumers to check the financial services register to ensure that a firm or investment they are considering is legit.
“More simply, the FS Register is like a VIP list which includes roughly 50,000 firms,” she said.
“If a firm or activity isn’t on it, it's unregulated. In May 2023, we’ll be hosting a TechSprint focusing on the FS Register.
“The ambition for this TechSprint is to explore innovative ways that register data can be harnessed by third parties, such as comparison websites, to enable more consumers to access and use this information proactively ahead of making investment decisions.”
The FCA is also looking at tech solutions to minimise the ‘Halo effect’, which happens when a firm that is authorised engages in unregulated activities, and these tactics make authorised firms or investment activities seem more trustworthy than they really are.
The Big Data Challenge
Rusu said the FCA’s strategy to become a data-led regulator is centred on making better use of data to spot and stop harm faster.
“This is essentially about exploiting data to deliver connected intelligence,” she said.
“We have a big data challenge, and are continuing to optimise how we collect, store, and exploit this data.”
She said the FCA has seen a 200 per cent rise in the volume of data it processes for investigations, including through encrypted channels such as WhatsApp.
The City watchdog processes over 1bn of transactions every month in market oversight and enforcement teams sift through millions of legal records.
“We process Reg returns for over 53,000 firms throughout the year, with approximately 600,000 records submitted in 2022,” she said.
“We supplement this with publicly available information, for example from Companies House, or insights driven from social media, as well as more specific data that we collect directly from firms or that is shared through our regulatory partners, such as the PRA, Financial Ombudsman Service or Citizens Advice.”
Rusu added that the FCA has improvised its capability to spot harm through utilising web scraping techniques and scan approximately 100,000 websites every day.
“As we become a more proactive, forward-looking regulator, the need to continue to invest in our people, technology, intelligence and innovation services is underpinned by a successful data strategy,” she said.
She added: “Advances in technology, changes in consumer behaviour, and macro shifts in market stability mean that regulators must keep pace with these changes, fighting fire with fire.
“With the rapid changes in technology and recent game-changing innovations such as ChatGPT, we know we can’t rest. We need to keep up the pace.
“Now, more than ever, firms need us as regulators to embrace innovation and lead from the front.”
sonia.rach@ft.com
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