FCA to Tackle Big Data, Expects Firms to Act Ethically

Speaking at a Thomson Reuters Newsmakers event, Randell said principle-based regulations and a center for data ethics may be on the horizon to maintain the UK’s leadership role in innovation and ethics. 

“The UK already has a trusted legal and regulatory system and contributes to setting global standards of corporate governance and business ethics. We need to contribute to new standards for data efforts too. The FCA and PSR [Payment Systems Regulator] are fully supportive of the governance proposals to establish a center for data ethics and innovation to ensure that the UK sets the highest standards for ethical conduct in harnessing the power of big data,” he said.

In a world where rapid technological advances are allowing firms to compile enormous amounts of personal data, Randell said consumers are potentially at risk if the financial services industry uses data science and technological efficiencies—such as advances in artificial intelligence (AI) and automation—to target and discriminate against individuals, rather than for purposes of financial inclusion. He painted a stark picture of a world where algorithms dictate how humanity should be governed by juxtaposing the prospect of firms using data unethically with a British TV science-fiction drama series from the 1960s, The Prisoner. 

“I want to argue that we should be optimistic,” he said. “Advances in data science have already brought huge benefits to society, such as smarter ways of detecting financial crime and market abuse, cheaper and faster transactions, and greater access to affordable financial advice and guidance. The UK fintech industry is world leading, and bursting with new ideas—but there’s no room for complacency.” 

Randell said that while the FCA supports financial innovation, it is mindful of possible harm to consumers. He signalled the importance of continuing collaboration with European Union regulators while maintaining EU standards, whatever the final Brexit deal looks like. 

“We will remain very involved in the global standard-setting process in the area of data, the regulation and oversight of big data, and the role of big data corporations. It’s almost more necessary than in most other areas that there be an international standard developed, because I don’t think any country can go at it alone very easily,” he said. 

When pressed for specifics on new regulation for data practices, he said UK firms should set their own standards and that he doesn’t expect a “15-page rule book,” but, rather, a set of principles. He anticipated more proactive supervision and enforcement for firms and individuals that use unethical and unfair data practices. 

Behavior to Monitor 

Innovation drives the industry in a positive way, Randell said, but there are areas that need to be monitored closely to ensure firms act with ethical discretion when it comes to data.

One such problem area is the vast amount of detailed datasets controlled by very few corporations, as well as the fact that AI and machine learning are delivering huge increases in processing power, which means corporations can mine big datasets for patterns more effectively than ever before. 

“Whereas in the past, firms could only target broad groups of consumers, these patterns can now be turned into conclusions about each one of us as an individual,” Randell said. “They can make predictions about our future behavior, and then decide what products and services we should be offered and on which terms.” 

He also highlighted the use of behavioral science to exploit decision-making bias informed by big data as another potential problem area.

Randell championed the FCA as a global leader in incorporating behavioral science into a “regulatory toolkit,” but said that in order to act in the interest of “good innovation,” firms must have sustainable business models, in which “people, purpose, and trust” are at the forefront. He said that because the UK is a “global leader in both technological innovation and financial services,” ethics is an “important topic.” 

“If we can combine these skills with fair standards and with public trust, we can maximize the opportunities for the UK finance industry to succeed in the global market,” he said.