22 April 2024, Financial Conduct Authority (FCA) has published a talk by CEO Nikhil Rati entitled 'Navigating the UK's digital regulatory landscape: Where are we headed?' During his speech, Mr Rati announced the FCA's plans to focus on Big Tech, as set out in the Feedback Statement FS24/1 (published at the same time as the speech). The speech also featured his FCA response to the government's Artificial Intelligence White Paper (A.I.), published in parallel with the lecture.
Speech: Key points
As part of his talk, Rati will discuss how FCA's unique access to Big Tech companies' large data sets will result in better products, more competitive prices, and broader choice for consumers and businesses. He explained that he plans to investigate whether this is possible. He noted that while the rise of Big Tech in financial services is already making consumers' lives easier, it remains unclear how valuable consumer data will become in financial markets. If the FCA's analysis finds that Big Tech data has value in financial services, consider facilitating data sharing between Big Tech and financial firms through open banking and wider open finance initiatives. right. If we find potential risks or harm from non-sharing of data, we will also consider making a proposal to the Competition and Markets Authority (CMA) Consider when the powers expected through the Digital Markets, Competition and Consumers Bill will be granted to regulate the digital and data conduct of designated companies.
Mr Rati also highlighted the FCA's ongoing collaboration with the Bank of England (bank of england) and prudential regulators on the role of key third parties and AI. He is a member of the newly launched Digital Regulatory Cooperation Forum (DRCF) AI and digital hubs are key to ensuring the FCA's approach is proportionate and supports innovation.
FS24/1 on data asymmetry between big tech and financial services companies
In FS24/1, the FCA summarizes its analysis of the responses received to the call for views (CFI) was launched in November 2023 on the potential competitive implications of data asymmetry between Big Tech and financial services companies. The FCA has also set out next steps.
The FCA is already working to identify the potential competitive benefits and harms of the growing presence of Big Tech companies in financial services as part of its three-year strategy, and one of its concerns is that these companies and data asymmetry between financial services. Companies could have a material adverse effect on the future development of competition in financial services. In FS24/1, the FCA stated that retail finance markets are evolving in such a way that some Big Tech companies gain market power, while enabling potential competitive benefits (from Big Tech entry and expansion). It explains that the purpose is to reduce competition risks.
There are four 'next steps' set out in FS24/1 to address the key issues identified by the FCA. In deciding its next steps, the FCA will balance the fact that data asymmetry has not caused significant harm to date, with the fact that it is beginning to develop a regulatory framework that enables competition and innovation to be fostered. He points out that it has come. Here are the steps the FCA will take:
- Continue to monitor the activities of Big Tech companies in financial services, assess whether policy changes are needed, and work with regulatory partners.
- We work with Big Tech companies to explore whether data from their core digital activities has value in specific retail finance markets.
- Develop a proposal (depending on the results) in the context of Open Finance for consideration by the CMA.
- Consider how incentives for companies, including Big Tech companies, can be aligned to share valuable data to achieve better outcomes for consumers.
- We work closely with payment system regulators (PSR), and alongside these efforts, understand the risks and opportunities associated with digital wallets.
FCA response to government white paper on AI
The 'AI Update' published by the FCA provides the latest information on its approach to AI following the Government's Accelerating Innovation Strategy published in February 2024. The FCA welcomes the Government’s principles-based, sector-led approach to AI and confirms that it: We focus on understanding how companies can safely and responsibly deploy technology and how AI innovation is impacting consumers and markets. This includes scrutinizing the systems and processes businesses have in place to ensure they meet regulatory expectations. We will continue to closely monitor the implementation of AI across UK financial markets, including continuing to consider any necessary amendments to existing regulatory regimes, and will continue to monitor the potential macro effects that AI may have on financial markets. We confirm that we will continue to monitor. cybersecurity, financial stability, interconnectivity, data concerns, market integrity, etc.).
This document outlines how the FCA's approach to regulation and supervision addresses the five key 'AI Principles' identified by the Government. 1) Safety, security, and robustness. 2) Adequate transparency and explainability. 3) Fairness. 4) Accountability and Governance. 5) Appeals and Remedies.
It also sets out what the FCA plans to do in relation to AI over the next 12 months.
- Continue to deepen our understanding of AI implementation in UK financial markets. This will ensure that potential future regulatory interventions are not only effective, but also appropriate and pro-innovation, and that the FCA will respond to emerging issues in particular companies. The aim is to ensure that a rapid response is possible from a supervisory point of view. Examples of work in this area include current diagnostic work on the deployment of AI across UK financial markets. Re-conducting the third edition of the Machine Learning Survey (in collaboration with BoE). Work with PSR to consider AI across systems disciplines.
- Build on existing foundations: While the existing framework is in many ways consistent with and supportive of the Government's AI Principles insofar as it applies to companies using AI, the FCA continues to monitor the situation closely and will update it in the future if necessary. It states that there is a possibility that the government will actively consider adapting the regulations. The report warns that regulatory regimes, such as those relating to operational resilience, outsourcing and critical third parties, are increasingly relevant to the safe and responsible use of AI by businesses, and the UK It said it would take the lessons learned from a deeper understanding of the implementation of AI in financial markets and transfer them to UK financial markets. Ongoing policy work in these areas.
- collaboration: The FCA regularly works with national and international partners, including on AI, and given recent developments (such as the AI Safety Summit and the G7 Leaders’ Statement on the Hiroshima AI Process), we are prioritizing further international engagement on AI. He explains that he is doing so. .
- Useful AI testing: The increased use of AI by market participants is expected to increase its impact on consumers and markets, so the FCA is working with DRCF member regulators to deliver a pilot AI and digital hub. At the same time, it emphasizes that it runs its own digital sandbox (allowing testing of technologies with synthetic data) and regulatory sandbox (of which the FCA is a global pioneer). The FCA is also evaluating opportunities to pilot new types of regulatory engagement and environments where AI designs and impacts on consumers and markets can be tested and evaluated without harm. This includes considering changes to our innovation services. Testing, design, governance and impact of AI technologies in UK financial markets within the AI Sandbox.
- Using our own AI: The FCA uses web scraping and social media tools that enable us to detect, review and triage potentially fraudulent websites, and we further use these technologies to proactively monitor the market, including for market surveillance purposes. I plan to invest. The company is currently exploring the potential for further use cases, such as natural language processing to aid triage decisions, evaluating AI to generate synthetic data, or using large-scale language models to analyze and summarize text. He says he is looking into it.
- For the future: Finally, the FCA says that as part of its Emerging Technologies Research Hub, it is taking a proactive approach to understanding emerging technologies and their potential impact. For example, as part of the 2024-2025 DRCF Horizon Scanning and Emerging Technologies workstream, the FCA will conduct research. About deepfakes and simulated content after engaging with stakeholders. The company also said it is actively monitoring advances in quantum computing, examining its potential benefits for the industry and consumers, while also considering the implications of its inherent security risks.
