In its Mission statement, the FCA said societal and technological changes were creating “significant challenges” to its traditional regulatory model, requiring the need to become “more sophisticated” in its approach to identifying and combatting consumer harm.
Referencing the growing prevalence of artificial intelligence in financial services, the FCA said it also plans to utilise data science, initially to identify and target firms with a greater risk of regulatory breach.
Financial crime will form the next focus for the FCA’s use of data science, where it will look at how this can help to detect insider trading, market manipulation and anti-money-laundering.
The FCA said its other applications for technology were “constantly developing” and will be explored over time.
“As we learn more from our work on data science we expect to be able to make better use of the data we receive, and use it to better target our activities with individual firms,” the statement said.
“While regulation will inevitably continue to involve a high degree of human judgement, new technologies offer us the opportunity to improve the use of our resource and thereby give firms the right incentives to reduce the frequency and severity of harm.”
The FCA also plans to play a larger role in influencing consumer decisions, including ‘nudging’ individuals toward more suitable products and providers and changing the way firms present choices to consumers, known as ‘choice architecture’.
The regulator added that where nudges failed to prevent consumers from making poor choices, it will consider intervening more significantly in ways such as restricting some products or imposing constraints on price.
Additional areas for consultation in the FCA’s Mission are the regulator’s role in encouraging innovation, transparency in regulation, and its intention to intervene against unregulated activities on a case-by-case basis.
Comments to the FCA’s call for evidence must be submitted by 26 January using the form on its website.