The UK’s Financial Conduct Authority (FCA) and Bank of England (BoE) have announced plans to transform their data and analytics capabilities, with the setting up of dedicated data science units and a set of data collection reforms.
The FCA’s new data strategy describes a transformation plan to become a “highly data-driven” regulator, with much greater use of advanced analytics and automation techniques. It aims to test and deploy new tools such as web scraping, network analytics and natural language processing “for a wide range of scenarios”; to explore the use of new tools and techniques to help detect financial crime; and to make parts of its handbook of rules and guidance machine-readable.
The watchdog also plans to establish data science units in selected parts of the organisation, and to “exploit new opportunities” arising from its migration to cloud-based IT infrastructure.
The BoE, meanwhile, has published Transforming Data Collection from the UK Financial Sector, a discussion paper that “seeks to lay the foundations for work to reform data collection over the next decade”.
It sets out the problems within the current system of data collection from financial firms – the bank says the process is “costly, takes time, is relatively inflexible, and involves a degree of duplication” – and explores a series of potential solutions. These include developing common data inputs at a more granular level, providing a “defined way for firms to record certain data”, and modernising reporting instructions.
The discussion paper follows the publication of the Future of Finance report, authored by Huw van Steenis, in June 2019. The British financier’s wide-ranging 148-page report recommended that the BoE develop a new digital data strategy.
The BoE has set a 7 April 2020 deadline for responses to its 56-page discussion paper, and says it plans to set up “one or more” industry working groups during 2020. It will then “develop a collective vision for data collection reforms over a five-to-10 year horizon, and proposals for immediate next steps that would move from pilots to live implementation”.
The BoE says: “The long timescale recognises that this will be a substantial challenge, and that we will need time to identify and implement the right solutions. It is also designed to encourage us to explore more radical changes, without the constraints that come with shorter timescales.”
It expects to publish an update on responses and the proposed next steps later this year.
The BoE’s work has an international dimension, recognising that many of the UK’s larger financial firms are active in multiple jurisdictions and are required to report to other regulators. The bank says that it will “engage with other initiatives”, including continued participation in the Switzerland-headquartered Financial Stability Board’s work to consider ways to avoid future fragmentation, which “include the possibility to promote greater use of common elements in supervisory data”.
Both the FCA and BoE recognise that the pace of technological innovation and tech adoption in the finance sector presents an opportunity for more efficient regulation, while challenging government authorities to significantly step up investment in digital capabilities.
The FCA says in its announcement that it is regulating an “ever increasing number of firms… [meaning] that we must do more with the same resources”. Its first data strategy was published in 2013; it acknowledges that technology and advanced analytics techniques have “evolved significantly” in the years since.
Digital Regulatory Reporting
In addition to updating their digital and data strategies, the FCA, the BoE and seven regulated firms have jointly published a viability assessment report on the latest Digital Regulatory Reporting (DRR) pilot. DRR is designed to allow firms to automatically supply data requested by regulators, thereby reducing the cost of collection, improving data quality and reducing the burden of data supply on the industry. The joint report explores the technological and economic factors that may shape the shift towards more automation in regulatory reporting.
Following the report, the FCA and BoE have pledged to work together to explore common data standards; commission a joint review of the legal implications of writing reporting instructions as code, and a joint independent review of some of the technical solutions explored as part of the DRR pilot; and collaborate closely while engaging with industry and planning future phases.
EBA explores big data
Meanwhile, the European Banking Authority (EBA) has also published a report on data and the financial sector.
The European Union banking watchdog’s 60-page Big Data and Advanced Analytics report, published this week, describes four key pillars – data management, technological infrastructure, organisation and governance, and analytics methodology – that it says are needed to support the rollout of advanced analytics. It also outlines eight “elements of trust” including ethics, consumer protection and security.
The EBA, which relocated from London’s Canary Wharf to Paris in 2019 as a consequence of the UK’s decision to leave the European Union, says the need for competence in the emerging field of big data and advanced analytics is becoming increasingly important, “raising an important challenge for institutions, supervisors and regulators”.