The data-driven approach could include the implementation of digital regulatory reporting
The Financial Conduct Authority (FCA) and the Bank of England plan to delve deeper into potential data and analytics capabilities in order to better understand financial markets and explore the use of automation.
The FCA confirmed yesterday that it has refreshed its data strategy; this is to align with its ambitions to become a highly data-driven regulator.
The strategy features an increased focus on the use of advanced analytics and automation in order to improve market understanding – this will empower the FCA to better predict, monitor and respond to various firm and market issues.
Alongside this investment into new technologies and external data, the FCA is also expanding the skills of its staff in correlation. For example, the regulator plans to establish new data science units as well as take advantage of the FCA’s cloud-based IT infrastructure.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “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.”
Equally, the Bank of England also plans to renovate its approach to data. The first step in this process is the publication of its discussion paper, Transforming data collection from the UK financial sector, which explores how to improve the timeliness and effectiveness of data collection from financial services firms.
The paper, a response to Huw van Steenis’s Future of finance report, outlines the issues that the current data collection system faces, identifying potential solutions and prompting feedback.
Sam Woods, deputy governor for Prudential Regulation and chief executive of the Prudential Regulation Authority (PRA), 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.”
Furthermore, the Bank of England, FCA and seven regulated firms have joined forces to publish a viability assessment report on the most recent digital regulatory reporting (DRR) pilot.
DRR has the potential to allow firms to automatically supply data requested by regulators; the FCA believes this will reduce data collection costs, improve data quality and reduce the burden of data supply on the industry.
The viability assessment report explores the technological and economic factors that may impact a shift towards the use of automation for regulatory reporting.
As a result of these actions, the FCA and the Bank of England have committed to jointly work on creating common data standards and to collaborate closely when engaging with the financial services industry to plan future phases.
Furthermore, the regulators will jointly commission two reviews; firstly, on the legal implications of writing reporting instructions as code and secondly, on the technical solutions explored as part of the DRR pilot.
Keith Richards, managing director of engagement for the Chartered Insurance Institute (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.
“It is vital [that] data is accompanied by human insight to ensure developments in the market are thoroughly understood. Digital breadcrumbs can’t 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.
“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.”
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