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Financial conduct regulation in a restless world

Publish date: 10 May 2019
Issue Number: 70
Diary: CompliNEWS
Category: Market Conduct

The UK's Financial Conduct Authority (FCA) on Wednesday released a speech on market conduct.

Speaker: Christopher Woolard, Executive Director of Strategy and Competition
Location: Deloitte conduct risk roadshow 2019, London
Delivered on: 8 May 2019

Highlights:

  • To continue to meet our objectives in a constantly changing environment we need to be ready to respond and adapt.
  • The FCA’s business plan focuses on both our longstanding regulatory concerns as well as considering what the future of regulation will look like.
  • Technology and innovation are changing not only the markets we regulate but also the way in which we regulate.

Here is an extract from the speech on innovation, data and data ethics:

But while they have a constant presence on our agenda, the way we tackle them is evolving – as technology, data and analytics bring their potential to bear on these perennial concerns.

This is typical of the wider FCA.

For example, we’re increasingly employing machine learning techniques to identify firms or individuals who could pose a risk to our objectives.

We’re also supporting the development of real world technical solutions through our TechSprint events, especially around anti-money laundering (AML). Later this year we will host the next stage of the process, with regulatory and law enforcement colleagues from around the world.

It’s also why we’ve embraced technology and its ability to better consumer outcomes – for example, through FCA Innovate and the Regulatory Sandbox.

It’s also at the heart of the Global Financial Innovation Network – or GFIN – an international network of 35 regulators, working together to share knowledge and provide an environment in which firms can trial their solutions across multiple jurisdictions. Last month we announced the first propositions being considered for these cross-border trials.

We want to explore not only how technology can drive new products, services and firms in consumers’ interests, but also what it can do to reduce the compliance burden of existing ones and make them more effective.

This is the thinking behind our work on digital regulatory reporting or, in other words, how can we use technology to make our regulation more efficient.

To give a sense of why this matters, we currently receive 500,000 scheduled regulatory reports from firms every year, not to mention those sent to us on an ad-hoc basis.

That’s a huge amount of information for both the regulator and regulated to process.

Our current, manual rulebook also leaves the job of understanding our rules open to ambiguity, as firms and professional services manually interpret regulations, creating a room for inconsistency.

In 2017, we developed a proof of concept which takes a regulatory requirement – whether that be to report or a conduct rule – contained in our handbook and turns it into a language that a machine can understand.

We currently have a call for input open on how this might work, with a view to publishing the feedback in the summer.

We want to explore not only how technology can drive new products, services and firms in consumers’ interests, but also what it can do to reduce the compliance burden of existing ones and make them more effective.
This commitment to innovation is one we’re making for the long term.

To make sure we have the skills to take on the challenges of the future, we’re strengthening our focus on science, technology, engineering and maths graduates to increase our capability in areas like cyber security, data science and technology.

Having this capability in-house will become increasingly important as we grapple with the huge ethical and social questions these new technologies bring up.

How do we ensure algorithmic decision-making is bias-free?

Should we develop a policy framework for how firms collect and use data?

How ‘explainable’ should these technologies and their outputs be to consumers?

And how do firms react to changing circumstances as data a digital business models become the norm?'

Full FCA speech

Working Smart

By Lee Rossini

Most financial advice businesses start off small, usually with the founder playing the role of owner, manager and financial adviser. However, as the business grows, planning and implementing organisational structures becomes more of a priority as the need for specialised positions and departments arises. The organisational chart, job design and analysis form an important part of this process. The information gathered from these exercises, specifically the job analysis, is subsequently used to draw up the job descriptions (JD).    

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