FCA and BoE ramp-up data credentials to 'transform' UK regulation

Mike Sheen
08 January 2020

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Chartered Institute for Insurance (CII) warns that data revolution alone won’t protect consumers

The Financial Conduct Authority (FCA) and the Bank of England (BoE) have committed to transforming the way in which UK firms are regulated via an unprecedented drive to improve the regulators' data and analytics capabilities.

Announcing their plans on Tuesday (7 January), the regulators said the changes would improve the standard of regulation, allowing them to "anticipate harms before they crystallise", and reduce the cost of reporting for regulated firms.

It follows previous signals from the FCA that it would embrace machine learning techniques to become a "robo-regulator", with aspirations likened to "science fiction".

The FCA's new data strategy is a five-year plan intended to transform the watchdog into a "highly data-driven regulator", it said, and will lead to an increased focus on the use of advanced analytics and automation techniques.

This, the FCA said, will deepen the regulator's understanding of how markets function, and allow the FCA to efficiently predict, monitor and respond to firm and market issues.

In order to achieve this, the FCA will invest in "skills and new ways of working", with the establishment of data science units and the migration to cloud-based IT infrastructure.

The FCA said: "Our data strategy will be delivered via an ambitious portfolio of work over the next five years. This will provide coordination across all data related projects and day-to-day activities."

Executive director of strategy and competition at the FCA Christopher Woolard added: "Advances in technology are changing the nature of the firms and markets we regulate. Our data strategy provides a clear path for us to ensure we have the necessary skills and processes in place to remain at the forefront of this change.

"In keeping with our mission, a data-driven approach to regulation allows us to anticipate harms before they crystallise, better understand the effect on consumers of changing business models and to regulate an increasing number of firms efficiently and effectively."

BoE eyes cost efficiencies

The BoE's latest approach to regulation follows the 2019 Future of Finance report, which saw the central bank commit to "seek ways to decrease the burden on industry and to increase the timeliness and effectiveness of data in supporting supervisory judgements".

As a result, the BoE has published a discussion paper, which identifies a series of potential solutions to issues with existing data requirements in efforts to prompt feedback from the firms it regulates.

The bank's plans for Digital Regulatory Reporting, or DRR, will potentially allow firms to automatically supply data requested by the regulators, "thereby reducing the cost of collection, improving data quality and reducing the burden of data supply on the industry", the BoE said.

Its own viability assessment shows that under a number of scenarios the bank is considering implementing, the biggest banks would be hit with large costs over the short term but, ultimately, see savings in reporting requirements over the longer term.

Deputy governor for prudential regulation and CEO of the Prudential Regulation Authority Sam Woods said: "Having the right data is vital to our role as a regulator, and to the ability of banks and insurers to manage themselves effectively.

"Recent developments in technology should allow us to improve how we collect data from firms, making reporting more timely, more effective and less burdensome for firms.

"This is potentially a major change so we want to work closely with firms to make sure we get it right over the next decade."

CII reaction

Keith Richards, managing director of engagement for the CII, said: "It is vital that the regulator has the right data to inform rules but data alone isn't enough to prevent future consumer detriment."

He added that human insight is needed to ensure developments in the market are monitored, asserting that "digital breadcrumbs" cannot replace the knowledge gained by speaking to those who assist consumers.

"There is also a danger that a desire to streamline data collection might mean that different assets might be treated as the same, simply to create large ‘buckets' for counting in a standardised way across the sector. This, in turn, might lead to an over-simplified view of the market."

He concluded: "I am pleased the regulator will work with firms to ensure data collection is less burdensome. The regulator needs to ensure the market understands how this information will be used."