Last week the European Banking Authority (EBA) flagged that ‘data-driven’ business strategies are fast emerging across the financial sector, and that this may soon raise the question of the need to develop AI specific policies or regulatory frameworks to facilitate its safe development and adoption.

The EBA is not alone. As we set out in our 2020 Financial Markets Regulatory Outlook, we know this is a question that cross-sector and financial services policy makers in both the EU and UK will grapple with in the years ahead. Their challenge will be to devise a policy position which strikes the right balance between competition and innovation on the one hand, and data and consumer protection on the other. Whatever approach they will settle on will have important implications for FS firms’ innovation and data strategies.

It is therefore crucial for firms to engage proactively and effectively in upcoming policy discussions. For example, the EU Commission is expected to publish a White Paper shortly setting out its proposals to develop an EU-wide approach to the ethical development of AI. The Open Finance regulatory debate in the UK, for example, is also an immediate opportunity for such an engagement.

Some of the key questions firms will have to be able to answer will be in relation to the value delivered to consumers in exchange for their data, as well as the balance between legitimate commercial interests and the rights and interests of their consumers.

In the UK, the FCA observed that consumers “should be empowered to understand the value of their data” and what they are likely to receive in return for it. We expect “value for data” to become an area of increasing regulatory focus, and firms will have to prove that they are treating their customers fairly in this regard.

There will also be an increasing focus on what consumers and society consider “ethical” and “fair”. This means firms will need to understand how their target customers are likely to respond to their new offerings, bearing in mind that consumers’ views of what is or isn’t a fair or ethical in this area are still forming. Any adverse event may cause significant backlash, result in reputational damage, and elicit a vigorous regulatory response. 

Data ethics will therefore continue to rise up the board agenda. Boards will be expected to put in place strong ethical frameworks, rooted in effective and integrated conduct and data governance frameworks.

But frameworks will only be part of the solution. Choosing the most ethical course of action will require diversity of thought and perspectives. As such, ethical frameworks will need to be supported by a good corporate culture, and a diverse senior executive team and board, including in terms of gender, ethnicity, professional experience, and social background.