Fighting financial crime with technology
Megan Butler, the FCA’s Executive Director of Supervision for Investments, Wholesale and Specialists, spoke about the opportunities technology can bring in the fight against financial crime.
Financial crime is big business for criminals and it causes incalculable damage to our society. Butler says the regulator is not going to tell businesses that they must use technology, but not exploring innovation is an opportunity that shouldn’t be missed. Firms have a duty to explore the options for making their customers’ money safer.
Compounding this is the ineffectiveness of the systems and controls financial services organisations have in place to prevent criminal activity. Unfortunately, they often do not keep pace with criminal activities as they do not detect the threats in real time. But new, innovative technologies (often blamed as an enabler of financial crime) could actually be the answer to combatting it.
Savvy firms are using technology to speed up fraud detection processes, flagging potentially risky transactions for human review. The technology used is increasingly sophisticated, including intelligent tech such as AI, machine learning and natural language processing for uses such as:
- AI impersonation checks to verify whether different identification photos match
- Machine learning to automatically detect high-risk customers
- Machine learning to detect fraudulent patterns with greater accuracy and in real time.
The FCA recognises the benefits of adopting technology itself for quicker and more effective processes. It is actively exploring technology with its TechSprints and has set up a global financial innovation network (GFIN) that spans borders for a harmonised approach between nations, says Butler. It is also using things like machine learning to sort through large data sets to create a more efficient approach to investigating scam complaints and sharpen its supervisory approach.
FCA considers regulatory model in a changing world
Christopher Woolard, Executive Director of Strategy and Competition, delivered a speech on the future of regulation in our changing world. There’s some useful stuff in here about what aspects of regulation are likely to change in the near future. If you’ve not got time to read the whole thing, here’s some of the highlights:
What does the future of the market look like?
- Consumer needs and attitudes continue to change in response to social and innovation drivers. Consumers are faced with more choice than ever and have fewer options for advice and guidance that leads them to making the right decisions. This is unlikely to change in the future and means that there’s greater potential for poor outcomes and losses for consumers. Regulation should, therefore, focus on simplifying things for consumers, not adding more complex rules.
- Innovation is gathering pace. We’re changing from services being delivered digitally to truly digitised products using AI and machine learning. Regulation must keep up.
What is the future of regulation?
Woolard accepts that the current regulatory model was defined in a world quite different to the one we have today. This, quite rightly, puts a question mark over whether we have the right regulatory model for the future. Over the next few months, the FCA will be engaging with the industry and the public and setting down its thoughts for a regulatory model fit for the future in discussion papers.
So, what might this future regulatory model look like? This remains to be seen, but the speech gives us a few clues:
- More outcomes focused – we can expect the regulator to more clearly define and state what those key outcomes are that it wants to see. Woolard is explicit that these outcomes should set the right amount of protection but do not mean overly pandering to consumers. Pursuit of profit is essential for healthy competition and functioning markets and consumers need to understand that risk comes with reward. Subsequently, the next year’s Sector Views and Business Plan will be much more outcomes focused.
- More interventionist – despite best efforts, disclosure simply isn’t always enough to remedy issues and lead consumers to make the right choices. For more persistent problems, the regulator will build its interventionist tactics around real consumer behaviours to prevent further harm from occurring.
- Simpler and clearer – the rulebook and principles are often overly complex. The FCA will seek to simplify the rulebook and principles, and align them to outcomes, to help all firms (especially the small ones) understand what they need to do.
- Better use of tech – the regulator believes technology could be used to help gauge consumer understanding as well as a tool for service delivery.
- More joined up – the regulator will be working in a more joined up way with other agencies to deliver rounder protection for consumers.
Complaints rise due to PPI
Complaints figures have been released by the FCA showing a rise in the first half of the year from 3.91 million to 4.29 million. The increase is due to PPI complaints, which remains the most complained about product (making up 49% of complaints received). There was a 6% drop in non-PPI related complaints.
Here’s a summary of the most complained about products after PPI:
- 14% current accounts
- 8% credit cards
- 6% motor and transport insurance
FCA seeks compensation for misled investors of illegal scheme
The FCA is seeking compensation orders for 4,500 investors who suffered losses at the hands of an illegal collective investment scheme. The scheme operated car park investments and raised £230 million from investors.
The FCA has started proceedings against the company, a number of other connected companies and its senior management. In addition to operating an unlawful scheme, the regulator says investors were misled – being told they’d receive unrealistic returns and that the investments were worth around a quarter more than the price they were being sold.