FCA promises better use of data and analytics

The regulator's proposals were detailed in a new data strategy, which is aimed at ensuring the FCA becomes "smarter" in the way it uses data and advanced analytics in the way it regulates.

Christopher Woolard, executive director of strategy and competition at the FCA, said: "Advances in technology are changing the nature of the firms and markets we regulate. Our data strategy provides a clear path for us to ensure we have the necessary skills and processes in place to remain at the forefront of this change. In keeping with our mission, a data-driven approach to regulation allows us to anticipate harms before they crystallise, better understand the effect on consumers of changing business models and to regulate an increasing number of firms efficiently and effectively."

The announcement of the FCA's new digital strategy coincided with the publication of a new discussion paper by the Bank of England on transforming data collection from the UK financial sector. The Bank of England has committed to developing its own "world-class regtech and data strategy".

David Heffron, a specialist in financial services regulation at Pinsent Masons, the law firm behind Out-Law, said: "With financial firms and markets fully embracing the use of data and data analytics, it is not surprising that the regulators are talking the same approach. This is a significant development and will materially inform the regulators’ views of markets, firms and consumers and its ability to identify potential harms. It is likely to be an evolution of approach but one that will happen faster than we might anticipate."

The FCA published its first data strategy in 2013, which it said "focused on how we collect and manage data". The regulator said that strategy helped it to "minimise the burden of data collection on firms", but that the strategy refresh was needed to account for the significant evolution of technology and advanced analytics in the years since.

The refreshed data strategy will be delivered over the next five years and, in addition to plans to simulate policy outcomes and use analytics to pinpoint the need for market intervention, includes ambitious plans that will enable firms to make use of FCA data to "simulate and test new products and business models".

Further plans outlined under the new strategy include the introduction of digital regulatory reporting, which will entail the automatic supply of data from firms to the regulator. A pilot initiative has already been undertaken involving seven regulated firms, and the FCA and Bank of England have together committed to a raft of further work in this area, including the potential creation of new common data standards and commissioning a review into the legal implications of writing reporting instructions as code.

The FCA's immediate priorities for the next 12 months under the new data strategy include increasing the data science expertise throughout its organisation and making it a "core capability", as well as "testing and deploying new tools such as web scraping, network analytics and natural language processing for a wide range of scenarios".

The regulator said it will also look at how it can use "new tools and techniques to transform the way we detect financial crime", and explore making parts of the FCA Handbook machine-readable and executable.

On the Bank of England's plans, Sam Woods, deputy governor for prudential regulation and chief executive of the Prudential Regulation Authority, said: "Having the right data is vital to our role as a regulator, and to the ability of banks and insurers to manage themselves effectively. Recent developments in technology should allow us to improve how we collect data from firms, making reporting more timely, more effective and less burdensome for firms. This is potentially a major change so we want to work closely with firms to make sure we get it right over the next decade – our discussion paper starts that process by setting out the strategic issues in order to stimulate a debate about the way forward."