A Problem with the FCA's thinking on Digital Innovation

Jessica Rusu talks in her speech about their data strategy being underpinned by a spirit of innovation. And she expands upon this spirit of innovation in terms of three ingredients – culture, experimentation and collaboration. I’ll illustrate her key points with these quotes:

Culture – “attracting a diverse and talented team to deliver digital transformation at the FCA”;
Experimentation – “the development and testing of new approaches and solutions” and “experimenting and iterating our approach to ensure that our market offering remains fit-for-purpose”;
Collaboration – “no organisation alone contains the required knowledge, expertise and perspective to overcome some of the intractable challenges that we face”.

She goes on to make an interesting point about how the regulator is making its datasets available to start up firms:

“Access to data is key to the development and testing of new approaches and solutions. However, financial data is highly sensitive and often difficult to access. The Digital Sandbox seeks to address this challenge by providing innovators with access to synthetic and anonymised data sets, alleviating the data access challenge and in turn stimulating new innovation…”

And she ends with this uplifting message:

“Only by sharing ideas and experience, forging new relationships and thinking about things in a new way can we become the innovative and adaptive regulator we need to be.”

Something Missing

This all fits together and makes sense in one way, but step back from it a minute and think about it another way. Her speech was about regulation, innovation and the digital changes happening in the market. Yet in her speech, she makes no reference, directly or indirectly, to the consumer.

Sure, she’s speaking at an industry event, but that’s hardly been a barrier in previous speeches by FCA executives. So is it an event at which she could have brought in the consumer perspective?

I believe it is, for two reasons. Firstly, the landscape that is framing the need for digital innovation by the regulator is one defined by significant consumer issues. Fairness, discrimination, autonomy and conflicts of interest are examples of such issues. And remember of course that this is a conduct regulator, so such issues are absolutely central to its purpose.

Secondly, only a few weeks previously, a consumer advocate sat in front of the powerful Treasury Committee and vented his frustration at how difficult it is for consumer groups to obtain the data to evidence the concerns they are seeing in amongst the people they represent. It just felt strange to have listened to those committee hearings and then contrast them with this speech, in which a leading FCA executive talked so freely about sharing datasets with the sector.

What I think this speech illustrates is the imbalance I’ve previously referred to in the regulator’s culture. They seem more comfortable engaging with industry, compared with engaging with consumer groups. This is down I think to two things: the economic mindset of most people at the regulator, and its reluctance to engage with social and ethical issues.

Implications

What does this matter to insurers then? Here and now – nothing. It matters more in the medium term, for the FCA is at risk of being challenged on at least two fronts. These challenges could split the FCA or loose it some of the Parliamentary confidence without which it is nothing. And for insurers, this could be hugely disruptive. Think pricing super-complaint and times it by three.

If you’ve read this far, I would very much recommend that you check out this piece of analysis. It looks in more detail at the question of regulatory commitment to social and ethical issues.