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November 2022 Regulation Update

Kyte Ekstrom

3 Nov 2022

Each month we publish a round-up of the latest regulatory updates, covering only the salient points, including links to relevant documents and webpages.

FCA Publishes New Webpage - Cost of Living Consumer Credit Data Collection

The FCA is asking a number of regulated consumer credit firms to provide data on their credit activities in order to monitor and assess the impact of the rising cost of living on consumers. The data, which will be gathered on either a monthly or quarterly basis, will be used to provide support to the FCA’s ongoing work.

The FCA notes that firms are required under Principle 11 to deal with their regulators in an open and cooperative way. Where firms do not provide the information, the FCA may contact them to understand the reasons for this.

The Cost of Living Consumer Credit Data Collection also includes a frequently asked questions section.

FCA updated webpage: cost of living consumer credit data collection

Cost of living consumer credit data collection: frequently asked questions

FCA Publishes Warning and Research – Trading App Design

The FCA has published a press release warning stock-trading app operators about certain product design features, including those with game-like elements, which risk prompting consumers to take actions against their own interests.

The features include sending frequent notifications with the latest market news and providing consumers with in-app points, badges and celebratory messages for making trades.

The FCA warns that consumers using apps with such elements are more likely to invest beyond their risk appetite.

Alongside the warning to app-operators, the FCA has published a research article raising concerns that consumers using such trading apps are exposed to high-risk investments, and display behaviours similar to those engaging in problem gambling. The FCA also recognises that ‘gamification’ can engage consumers positively, but cautions that it is currently being used in a way that could mislead consumers or encourage problem behaviours.

Sarah Pritchard, Executive Director of Markets at the FCA, explained that all firms which offer stock trading to consumers are expected to:

  • review and - where appropriate - make improvements to their products based on these findings to ensure they are fit for purpose.

  • ensure they are providing support to consumers – in particular, those who are vulnerable or demonstrating signs of problem gambling behaviour.

The FCA intends to conduct further research into trading app use and design features. The accompanying press release further notes that ahead of the New Consumer Duty coming into force next year, all firms should be reviewing their products now to ensure they are fit for purpose.

Press release - FCA concerned about problem behaviours linked to trading app design

Gaming trading FCA research

House of Lords Publishes Report - Fighting Fraud

The House of Lords Committee on the Fraud Act 2006 and Digital Fraud (the Committee) has published a report of their session titled ‘Fighting Fraud: Breaking the Chain’.

The key conclusions of the report include:

  • Fraud comprises of 41% of all crime against individuals in England and Wales.

  • Digital technology has led to new opportunities for fraudsters, and the COVID-19 pandemic has accelerated this trend as people have moved more of their lives online. However, those responsible for these new technologies are not doing enough to prevent the exploitation of their services; and

  • While the Fraud Act 2006 (the Act) is comprehensive, there are opportunities for improvement.

The Committee has made a number of recommendations, including:

  • The government should establish a cabinet subcommittee with a clear mandate to tackle fraud, which would be chaired by, and accountable to, the Security Minister.

  • Fraud should be written into the Strategic Policing Requirement, which sets out the top policing priorities. Currently, just 1% of law enforcement is focused on tackling economic crime.

  • A new corporate criminal offence of ‘failure to prevent fraud’ should be introduced, applicable across all sectors, which could be accompanied by significant financial penalties.

  • A delay lasting no more than several hours on certain high-risk payments should be introduced, to give banks more time to analyse whether a payment may be fraudulent.

Fraud Act 2006 and Digital Fraud Committee: Fighting Fraud: Breaking the Chain

Enhanced summary

Press release

FCA Publishes Speech - The use of Artificial Intelligence in Financial Services

The speech given by Jessica Rusu, Chief Data, Information and Intelligence Officer, entitled ‘Artificial intelligence (AI): Moving from fear to trust’ was delivered on the 9th of November 2022.

In the speech Ms Rusu covers, among other things, the ethical questions surrounding AI. Ms Rusu notes that: ‘there are real and legitimate concerns around economic stability as well as ethical questions surrounding the ability of AI to mimic human intelligence. And there are perhaps more immediate concerns over firms exploiting consumer data and the privacy concerns associated with hyper-targeting.’

Ms Rusu also refers to the recent survey conducted jointly by the FCA and the Bank of England on the use of machine learning and AI in financial services. The survey found, unsurprisingly, that the use of AI in financial services is accelerating and also provided insights into the sentiments surrounding the relative benefits, risks and opportunities.

Ms Rusu went on to explain how safe and responsible AI adoption must be underpinned by high-quality data and considers AI bias (or AI model risk). She also discussed regulating AI, exploring the need for either fine tuning existing regulatory framework or whether new approach would be needed. Stating that, ‘What underpins this discussion is the idea that we already have a framework – the Senior Managers’ and Certification Regime (SMCR) – that can be applied to many of the new regulatory challenges posed by the use of AI in UK financial markets.’

FCA Speech: AI: Moving from fear to trust

FCA Publishes speech - Priorities for the Financial Advice Industry

The speech given by Therese Chambers, Director of Consumer Investments at the FCA, delivered at the Festival of Financial Planning on the 1st of November 2022 covered key areas of focus for the financial advice industry.

Highlights from the speech included:

  • The FCA wants to see more consumers who can afford to do so investing their money safely.

  • This will only occur in a better consumer investment market.

  • Financial advisers play a major role in helping or hindering this better market.

  • The Consumer Investment Strategy and Consumer Duty is a big change that should turn the dial improving financial advice, the consumer investment market, and outcomes for consumers

Ms Chambers discusses the Consumer Duty at length, noting that the successful implementation of the Consumer Duty by firms will help ensure the outcomes sought by the Consumer Investments Strategy. She went on to breakdown the 4 consumer duty outcomes which apply the Consumer Duty to the consumer investments sector.

Ms Chambers stated, in conclusion, that , ‘The Consumer Duty is a game-changer for us as your regulator. It should be seen as providing a higher standard of protection for consumers. It will make it easier for us to intervene more quickly and effectively where we identify poor outcomes for consumers.’

Speech: Key Priorities for the Financial Advice Industry

Financial Lives 2022 survey: insights on vulnerability and financial resilience relevant to the rising cost of living

FCA Publishes Speech - Consumer Duty

The speech delivered by Nikhil Rathi, CEO of the FCA, covers matters relating to the new Consumer Duty. In particular, it was highlighted that:

  • The FCA does not intend to move the phased implementation deadlines again, although it aims to take a pragmatic approach to overseeing implementation and requests that firms continue to be open about their implementation progress.

  • the FCA intends to engage with firms to understand how the Consumer Duty may be used to develop a framework for deployment of AI and other technologies in pursuit of resolving consumer-related issues, including identifying vulnerable customers and collecting accurate customer feedback. The FCA anticipates that the Consumer Duty will enable them to move more quickly to facilitate new technological developments across the financial services sector.

  • the FCA aims to monitor the impact of the Consumer Duty to ensure that it does not lead to excessive risk aversion in firms, or the withdrawal of products for certain hard-to-reach groups. The FCA indicates that they supports accelerated roll-out of banking hubs and other proposals to support the transition to digital for individuals and small businesses.

Speech by Nikhil Rathi, FCA CEO at the UK Finance annual dinner: Rolling regulation forwards

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