The FCAs data priorities through to 2025 (the 4 most important)

Keeping up with regulations is one of the toughest challenges facing the financial service sector.

That’s why the FCA is prioritising data and innovation as a key feature of its Business Plan 2022/23, accompanied by its three-year strategy 2022-2025.

Emerging themes include data quality, CRA transparency, Big Tech, and data for BNPL firms. If you haven’t addressed all of these items, try to take action as soon as possible. 

With this in mind, in this article, we discuss the most important data regulation issues facing the financial services industry, from data transparency to consumer credit market reforms, and more.

Let’s dive right in…

The FCAs three-year strategy: A quick recap

The Financial Conduct Authority (FCA) keeps saying it is a data-led regulator. In fact, Nikhil Rathi, Chief Executive at the FCA said that this year we would start to see a different type of FCA. More innovative, more assertive, and more adaptive.

Over the next three years, the FCA is strengthening its focus on:

●      ⬇️Reducing and preventing serious harm

●      ⬆️Setting and testing higher standards

●      🔀Promoting competition and positive change

These commitments have an emphasis on operational efficiency and a data-led approach with an end goal to put consumers’ needs first. A key part of this is about preparing financial services for the future. And the role data plays in making this happen.

Some of the FCA’s key intentions in relation to data include:

●      using data more systematically and using its intervention powers more actively;

●      reducing and preventing serious harm by harnessing data to assess problems quicker;

●      improving its reporting requirements, for instance, through automated data collection;

●      improving its ability to detect market abuse;

●      supporting integrity in the environmental, social and governance (ESG) ecosystem;

●      examining the role of AI in financial services;

●      and continuing to invest in technology.

At the same time, the FCA will need to broaden its remit as the complexity and breadth of data broadens. Another key point here is that financial services are moving away from legacy institutions to tech firms and other challengers who hold data.

📖For more on this, you can download the FCA’s three-year strategy 2022-2025 here.

The FCAs 4 main data focus areas: And what this means for lenders

The FCA has resolved to become a more data-led regulator. And the Prudential Regulation Authority (PRA) and the Bank of England share this ambition.

But what are the key areas of focus that lenders need to be aware of? We’ve identified four main focus areas:

#1: A key focus on high-quality data

The FCA will play a stronger role in ensuring firms have high-quality data. This means, that as important as ensuring you are sending timely and accurate and reliable data, you also need to make sure you are acquiring high-quality, accurate, and timely data from the bureaux.

This is something that is highlighted in the recent Credit Information Markets Study. We talk about this here in detail.

In summary, the FCA says that the credit information sector needs to work better to support retail lending and to make sure credit is offered where appropriate and at a fair price.

While there are a few ways the sector works well, there are also aspects that need urgent attention and improvement. The top three most pressing issues are:

●      #1: Data buying and negotiation: There is a significant lack of bureau data transparency. And key differences in CRA products make it very complicated to make comparisons with competitors or with other customers – unless you have specialist knowledge.

●      #2: Data pricing discrepancies: The three large CRAs compete on data quality and price and many lenders we speak to say they are unable to secure price freezes or reductions from CRAs.

●      #3: Significant differences in underlying data: The FCA says there are significant differences in the credit information held on individuals across the three largest credit reference agencies.

In light of these findings, it is clear that there is a lack of consistency in the data held by CRAs – which could impact on a firm's risk and consumer fairness – more on this later.

#2: Data impacts on BNPL firms

The Council and European Parliament recently reached a provisional agreement on consumer credit directive – effectively replacing the current 2008 directive on consumer credit agreements. While the new consumer credit rules will affect general credit providers, they will impact the BNPL space much more radically.

For instance, BNPL providers may currently only be sharing data with the bureau that they use. And when other bureaux do not see that data, it could lead to a BNPL provider saying “yes” to a customer – unaware that five other providers may have also completed loans in the past week.

For those BNPL providers who will be affected by the new rules, this will lead to increased on-boarding costs. 

#3: Accurate data for consumer fairness 

At the same time, while steps have been taken by BNPL firms to tighten affordability checks in recent months, not all BNPL providers conduct a full risk check.

Soft searches are also being used as a pre-check, by some credit providers, to screen customers and only make offers to applicants that are likely to pass a more thorough risk evaluation. Depending on the data and thresholds utilised, which is not necessarily uniform from each bureau and provider, this could be both unfair on the consumer or represent risk or lost opportunity for the credit provider. 

Yet with the directive coming into force, lenders must properly assess a consumer’s creditworthiness, and whether they can repay their credit.

#4: Big Tech and increased competition

Finally, the FCA has a keen eye on the role of Big Tech, particularly within payments, deposits, insurance, and consumer credit markets. They are concerned about the potential dominance of big players in the technology sector as they start providing their services to the financial services sector. But also recognise that technology also provides innovation and, with it, potential benefits.

Likewise, they have also been looking at the role of third parties in cloud infrastructures. If you're active in these markets, you may wish to engage with the FCA on their work.

In summary, we believe the FCAs data focus leads to many areas of discussion and is a clear signal to credit providers that the next few years will require a tightening of data sourcing, scoring, and modelling.

The future of data regulation

Now that we know how the FCA is focused on data today, let’s look ahead to the future of data regulation.

In short, I think we can expect financial services data regulation to come under much closer scrutiny. Regulators will have to ensure firms can show not just how data is gathered and stored, used, or scored, but also why it was decided it was important in the first place.

Undoubtedly, regulators like the FCA will face their next 20 years regulating much more data than ever before. Data that is broader, deeper, and delivered at a faster pace.

And while they will rightly hold firms to account, in the UK they will be committed to ensuring regulation does not stifle innovation or at least dramatically add to the burden – otherwise, it will be end-customers who will bear the costs.

Wrap-up

From now on, this is a space to watch as the FCA has stated it will publish further progress updates as it continues to deliver its transformational vision.

Data benchmarking is one way you can navigate the data bureau landscape. This approach helps you to measure your current state of data pricing, quality, and accuracy and compare this performance against peers and industry standards. And to ensure you maintain data quality, we also recommend that you gain access to the best data sources available.

If you have any questions or concerns about data bureau contracts or data benchmarking, please leave a comment below.