Big Data in FinTech

Event Summary

Hot on the heels of our APPGDA event ‘Big Data in FinTech’ in the House of Lords on Tuesday 20th of June, we wish to provide those who are interested but could not join us on the day with a summary of what they missed and give those who could join us with a reminder of the highlights.

Key Themes of the event

·         Regulating FinTech: Should we? How? What could ‘smart regulation’ look like?

·         Blockchain: Impact and potential

·         Data ownership: consumers should be ‘in the driver seat’

·         Regulatory landscape post-Brexit

The event was chaired by Lord Knight of Weymouth. In his opening remarks, he began by setting the event in the current overall policy context, stressing the importance of All-Party Parliamentary Groups, Committees and other forms of collaborative, cross-bench policy making initiatives. In this historic session,[1] Lord Knight also outlined the difficulty facing policy makers of both Houses in engaging with data analytics and the FinTech sector:

‘Many policy makers see these new technologies emerging and really struggle. We struggle on a personal level in how we adopt them; we struggle in how we react to them. In FinTech there is an understanding that London in particular takes a global lead in FinTech. We [as policy makers] are excited about that and we want to back it, because we like success and backing success but we are not sure how best to do that.’

In this light, Lord Knight set out two objectives for the session: to identify ways to support the FinTech industry and to find ways and means to regulating the sector without stifling its innovative edge. He stressed that the lessons of the financial crisis are important to bear in mind and to move towards a ‘smart regulation’ approach. He then introduced the expert panel, who consequently made their opening remarks.

Simon McCulloch, commercial director at Comparethemarket.com discussed three interlinked points in his statement, whether current legislation helps or hinders the industry, what parliamentarians should know and the future prospects of the sector in 10 or 20 years’ time. On the subject of current legislation, he emphasised that legislators should recognise that regulatory burdens pose a particular challenge to start-ups who require more of a ‘leg up’ in the initial stages. Current ‘sandbox’ schemes to promote start-ups should be expanded and built upon.

Echoing a recurrent theme throughout the session, Simon McCulloch called for regulations on data usage that centre on the consumer rather than corporations: ‘currently the main beneficiaries of FinTech are the companies, consumers predominantly only benefit where there is a happy coincidence that their needs coincide with the interests of businesses.’ He then set out his vision for what Lord Knight termed smart regulation: ‘there is a balance between protecting consumers from  companies using data to their disadvantage needs to be weighed against a data landscape that allows consumers to be in control of how their data is used to their advantage’. Simon illustrated his point by stressing the current unfair practice of car insurers to use telematics data to assess the driver’s risk of accidents but not allowing customers to carry their data over to the next insurance provider.

Steve Boms, Vice president of government affairs at Yodlee reinforced this call for customers to have ownership of their data. On this subject he clarified that there is currently some uncertainty as to when data ceases to be personal data through data processing. He emphasised that the current UK regulation of FinTech is highly regarded across the industry and widely seen as one of the most progressive in the world. He attributes this to PSD2 (the European payment regulation) and the UK specific open banking regime. These two factors led Steve Boms to conclude that the ‘UK is the most progressive and most thoughtful in terms of the regulatory structure for FinTech’.

Antoaneta Serguiva, formerly of the UCL Centre for Blockchain technology, then provided some technological background to the blockchain technology, its role within the Fintech sector and its enormous future potential. On the last point she expanded that currently, 95% of Blockchain’s potential remains untapped. Paul Moore, Director of UK Sales at Fuzzy Logix strongly agreed with Ms. Serguiva regarding the potential of Blockchain and added that he anticipates that ‘data volume will continue to grow at an exponential rate’. Data analytics, by allowing companies to better use the data they hold, therefore plays an important role in this data revolution. Paul also stressed that in terms of regulation, law makers should ensure that new regulations are easy to implement for companies to reduce administrative burdens.

Neil Pennington, an internationally recognised expert on Blockchain technology, stresses that blockchain technology can be expanded in new areas and further several positive social outcomes, such as enabling people previously suffering from financial exclusion to access financing. The significance of this is underlined by the fact that 2.5 billion people globally have no legal identity, let alone access to banking. Neil also reflected critically on the past process of adapting to the digital age: ‘I think we have all gone blindly forward into Facebook world and we give up our digital identity and our data willy-nilly in exchange for apps which tell us which rock star we potentially look like’.

The panel then engaged in a lively Q&A with the audience. Caren Kristensen emphasised that in discussing regulation of the sector, ownership structures of service providers should be considered by the regulator as experience from other sectors demonstrates that ownership structures play a crucial role in determining a company’s behaviour in the marketplace. She also agreed with the panel on the need to strengthen consumer’s ownership of personal data. Lord Knight pointed out that UK seems to be moving in a weaker regulatory position. This is odd, given the near consensus in the room to strengthen consumer ownership of their data rather than weakening it and given the direction other places (EU) are going in this respect.

Several members of the audience and panellists emphasised the difference between traditional financial institutions, which are clearly identifiable custodians of their customer’s data.  Blockchain on the other hand derives its security from hacking and control through the distributed nature of storing and processing data protocols. This very feature makes it very difficult to enforce digital legislation, such as the ‘right to be forgotten’ or the GDPR. Gareth Nutall, a researcher on distributed ledger analytics argued that for this reason, Blockchain and similar technologies should not be regulated at all. In support of this, he pointed to the example of the internet, which thrived precisely because of the absence of regulation.

Another important topic featuring in the ensuing debate was open banking. Neil Pennington and several members of the audience emphasised open banking as a prime example of a practical and positive outcome for consumers. However, several panellists express concern over the security of mobile devices which would, through their apps host increasing numbers of sensitive data.

In conclusion, the panel session sought to promote mutual understanding between the FinTech industry, the public and members of the two legislative Houses in the UK. The event answered the two questions set out by Lord Knight at the beginning of the session: How can lawmakers help the FinTech industry continue to grow and how should the industry be regulated to ensure positive outcomes for consumers?

Throughout the discussion it became apparent that these two subjects are almost congruent. In the long run, public support and therefore legislative support of the FinTech industry will depend on its ability to produce positive outcomes for consumers. Ownership of personal data by the consumers who produce it is therefore and integral part of a progressive legislative agenda. Innovations such as open banking can actively enhance consumer’s economic well-being and pave the way for future refinement and innovation in the FinTech sector. The event also demonstrated that as Steve Broms put it ‘common standards’ for data ownership would also benefit corporations by providing legal clarity as to what they can and cannot do with customer data.

[1] During a brief delay at the beginning of the event, Lord Knight hosted the first ‘Rock, paper, scissors’ tournament in the long and proud history of the House of Lords, as he assured an amused audience