Keeping up with financial service regulation

by Wiktoria Kulik - Digital Ethics Consulting Manager
| minute read

New financial services regulation is about to change the way you use data and technology forever. Digital Ethics will help you keep up.

Financial services organisations are facing a number of new, complex regulatory challenges that will either directly or indirectly affect the way firms will use data and technology for decades to come.   

At the same time, the promise of data and advanced technologies such as artificial intelligence (AI) has never been greater. Furthermore, in order to align with some regulations, greater – not less – use of data will be beneficial. 

The question, then, is how can firms prepare for new requirements without losing out on the benefits of data and technology? Adopting a Digital Ethics Strategy is an important part of the equation. 

Here we take a look at the impacts of four different frameworks that will drive change.

  • The Consumer Duty - coming into force in July 2023 and overseen by the FCA, the Duty will introduce a new Consumer Principle requiring firms to act to deliver good outcomes for retail customers. It will support outcomes such as 
    • suitability and treatment - consumers are sold products and services designed to meet their needs, and receive fair treatment,
    • understanding - consumers receive communications they can understand throughout the product lifecycle,
    • and support - consumers can access the support they need, when they need, regardless of why they need it.
  • The EU AI Act - likely to be finalised in the second half of 2023, the AI Act takes a risk-based approach to AI systems. It will require all systems deemed high-risk, including systems used in essential private and public services (e.g., credit scoring denying a person the opportunity to obtain a loan) to undergo adequate risk assessment. Systems will provide clear and adequate information to the user, and include appropriate human oversight measures alongside other strict obligations that need to be fulfilled before the system can be put on the market. Despite the UK no longer being in the EU, the scope of AI Act will place compliance obligations on any UK firm deploying their systems to the EU market.
  • The UK government’s AI Whitepaper - published in March 2023, this paper describes five principles to guide and inform the responsible development and use of AI that will be translated into sector-specific domains in the next six months:
    • Safety, security and robustness; 
    • Appropriate transparency and explainability; 
    • Fairness;
    • Accountability and governance; 
    • Contestability and redress.
  • The SS1/23 Supervisory Statement - proposed by the Prudential Regulation Authority, this paper sets out expectations for banks’ model risk management. It includes minimum expectations and strong governance oversight with a board that promotes an MRM culture from the top, robust model development process, and independent model validation. Digital Ethics will help you keep up with regulatory changes.
Digital ethics is a continual process of identifying, prioritising and managing the risks and  opportunities that technology and data use pose to humans, society and the environment.

A myriad of standards for responsible data use and trustworthy technology have emerged over the last decade, and now provide largely consistent digital ethics principles.  

Sopra Steria describes these principles in our digital ethics categories:

  • Transparency
  • Fairness, Equality, Diversity & Accessibility
  • Privacy
  • Safety
  • Environmental Sustainability
  • Displacement, Skills & Work
  • Societal Impact

The role of Digital Ethics 

A well-designed, successfully implemented digital ethics programme will by necessity address the requirements of the regulations and guidance described above in ways that governance, policies and controls cannot.  In fact, the FCA itself pointed out, in its review of UK firms’ Consumer Duty Implementation plans, that the shift to focusing on consumer outcomes (which are also ethical outcomes), will require a significant change in many firms’ cultures.  

There are four key benefits that financial services firm will be able to capitalise on by implementing Digital Ethics programmes:

  • Increased transparency and accessibility
  • Getting the right data
  • Leveraging the data responsibly
  • Improving culture and engagement

Digital Ethics increases transparency and accessibility

A digital ethics strategy and programme based on best practice requires that digital services are designed for accessibility and transparency. In practice, that means that service designers undertake user research to understand users’ needs, values, beliefs and expectations.  

When translating this understanding into service design, there are two aspects: 

  • ensuring users can make use of the service regardless of any special needs, such as physical impairments or neurodiversity requirements; 
  • and working to communicate effectively about the service itself, especially how customer data is used, how decisions are made, and where to go for further support.

In our work on digital accessibility, we’ve improved services by introducing larger fonts on screens. We’ve also adapted the user journey so that it supports neurodiverse users by, for example, turning off time limits on tasks so that users are able to complete them without unexpected changes in content or context.

Our Trust and Transparency research examined banking customers’ views on the communications they received about how the bank arrived at a decision to approve or decline their application for a credit card. An overwhelming majority of those who were rejected, complained that the bank was not clear about how the decision was reached, which eroded their trust in the institution and their willingness to use other services provided by the bank.   

Improvements in accessibility and transparency such as these demonstrate alignment with key requirements in the Consumer Duty (understanding and support), the AI Act (clear and adequate information provided to users), and the principles outlines in the UK government whitepaper (appropriate transparency).

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Digital Ethics helps ensure you’re gathering the right data

Contrary to some opinions, digital ethics isn’t about using less data or technology. In fact, digital ethics often helps make the case for the expanded use of both, based on their ability to make services fairer, more accessible, and more sustainable, or to improve social outcomes.  

The Consumer Duty will require better use of data. Digital ethics enables firms to respond to this requirement effectively by embedding more thorough and systematic approaches to examining what good (and bad) outcomes look like for customers, and how these can be evidenced through data.   

One of the key challenges in achieving this is the lack of trust, leading to customers not wanting to share their data, and widespread misunderstanding about the available legal and ethically sound avenues of obtaining the data. Digital ethics can guide this process and inform approaches that allow firms to collect the relevant data while respecting privacy and preserving consumer confidence (by, for example, introducing privacy enhancing technologies). This will in turn allow firms to appropriately segment the market and understand the impact of the firm’s approach on different customer groups, and target interventions that will drive compliance and improved outcomes.

When combined with a transparency strategy, as described above, financial services firms can also create an opportunity to establish deep levels of trust, which can lead to significant business benefits, such as customer retention.

Digital Ethics helps ensure you’re leveraging the power of data responsibly 

To achieve compliance, financial services organisations will need to redesign their governance processes. Most obviously, the AI Act requires more detailed documentation for data use, but all four regulations will rely on accurate documentation to achieve their respective aims. 

Such documentation is just good practice that can help improve other important aspects of data management, such as data quality and risk management. Digital ethics practices reveal previously hidden risks, such as potential bias in data models, or the unintended consequences for certain user groups when making changes to digital service provision, such as inaccessibility.  

Our approach to digital ethics sets in place culture, processes and systems to identify these issues early. For example, empowering bank employees to identify and raise issues with data quality makes it easier to remediate those issues before the data is used, and before a system is developed that could be unfair as well as potentially inaccurate and biased.

Digital ethics will help you achieve more than compliance

The Consumer Duty is a principles-based regulation; in other words, it doesn’t prescribe specifically what has to be done, only what outcomes must be achieved. Similarly, the UK government’s guidance, for now at least, describes only principles. This means that firms will have to interpret the guidelines, establish the right definitions of the principles for their strategic contexts, and importantly, set out ways of measuring progress. 

Again, better data and technology will help with this challenge. However, firms that get these things right, will do so because they have also established a culture that enables their people to understand and uphold the principles underlying the regulation. That’s because the principles have been translated into organisational values, behaviours and ways of working that are less tangible but just as important as policies and processes – and they’re more widespread than the data and technology teams.  

Cultural alignment is also core to digital ethics. In our work with financial services organisations, we have found that a governance-only approach limits firms’ ability to manage principles-based compliance requirements. Moreover, it limits the potential to achieve wider business benefits. 

For example, introducing a mandatory impact assessment without addressing the underlying reasons and without addressing the required cultural change, can result in the assessment becoming a ‘tick box exercise’ that does not pick up on the potential risks of the systems.

Digital ethics will help organisations to accelerate their compliance with forthcoming regulations by:

  • helping them establish context-appropriate definitions for principles-based standards,
  • setting effective governance, policy and process,
  • and embedding the right values, behaviours and ways of working in organisational culture. 

It will also amplify other business benefits, such as customer trust, improved customer loyalty and intimacy, and organisational reputation.  




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