Why does FCA care about Big Tech?

This time something closer to home, as I’ll be focusing on the UK. On April 22, 2024, Nikhil Rathi, the Chief Executive of the Financial Conduct Authority , delivered a speech at the Digital Regulation Cooperation Forum, emphasising the strategic regulatory focus on Big Tech and AI in the financial sector. His speech, coinciding with the release of Feedback Statement FS24/1, outlined the FCA's perspective on evolving digital landscapes in UK financial regulation. To my international readers—FCA is somewhat similar to SEC in the US, ESMA in the EU, or ASIC in Australia.

Here are the highlights:

• Big Tech Focus: Rathi articulated the FCA's intent to scrutinise the unique data access of Big Tech firms, evaluating its potential to enhance consumer choice, competitive pricing, and innovative financial products
• Data Sharing Incentives: The FCA is exploring ways to foster greater data sharing between Big Tech and financial services entities, driven by insights from its ongoing Open Banking initiatives and expanding into broader Open Finance contexts
• Regulatory Collaboration: There is an emphasis on collaboration with the Bank of England and the Prudential Regulation Authority, particularly concerning the role of third-party services and AI , ensuring balanced regulatory approaches that support innovation.

Key Developments from FS24/1:

• Data Asymmetry Analysis: The FCA's feedback from its November 2023 Call for Input revealed potential competition impacts due to data asymmetry between Big Tech and financial services (hence the response)
• Future Steps: The FCA plans to: Continue monitoring Big Tech's impact on financial services to determine necessary policy adjustments Collaborate with Big Tech to assess the potential value of their data in retail financial markets Propose new frameworks based on these findings to the Competition and Markets Authority (CMA) for regulatory considerations Enhance data sharing mechanisms that benefit consumers and the broader market.

AI Strategy and Response to Government White Paper:

• Pro-Innovation Stance: The FCA welcomed the government's principles-based approach to AI, emphasising the need for a regulatory environment that supports safe and responsible AI adoption
• Ongoing Initiatives: FCA is intensifying its efforts to understand AI's deployment within financial markets to tailor regulatory interventions that are both effective and innovative
• Collaborative Efforts: The creation of the AI and Digital Hub under the Digital Regulation Cooperation Forum highlights the FCA's commitment to addressing cross-regulator tech issues, enhancing the landscape for tech innovators and ensuring comprehensive consumer protection.

What Does it Mean for Tech Firms?

• Regulatory Adaptation: FCA talks about collaboration but, in the end, it’s the regulator. At some point tech firms will need to adapt to tighter regulations, focusing on data privacy, competition fairness, and consumer protection
• Innovation Opportunities: Encouragement of safe data sharing and responsible AI use could be a signal of a shift towards more innovation-friendly regulatory practices
• Cybersecurity and Analytics: There is a potential boost for innovation in cybersecurity and data analytics, driven by the need to secure data and glean insights in compliance with regulations
• Consumer-Centric Products: The regulatory environment pushes tech firms to develop consumer-focused tech that aligns with the principles of fair and transparent service
• Market Dynamics: When one regulator starts sniffing around a specific topic, others typically follow. Enhanced regulations may reshape market dynamics. Big Tech will emerge as both a collaborator and competitor within the financial services sector.

Looking Forward:

As Big Tech companies go deeper into the financial services sector (payments , embedded finance , BaaS and all-in-one apps ), their evolving role prompts a reevaluation of potential regulatory shifts. This is particularly pertinent as digital wallet services and data-driven financial offerings gain traction, becoming staples in consumer daily routines. Currently, the Financial Conduct Authority maintains a cautious approach, suggesting that major regulatory changes—possibly including new laws or enhanced data management frameworks under the Digital Personal Data Infrastructure (DPDI) Bill—may not be imminent.

As tech firms broaden their financial services presence, offering solutions in payments, money management, insurance, and lending, they drive both opportunities for broader financial inclusion and challenges related to privacy and market power. I’m not surprised that this triggers continual policy discussions and reviews, striving to balance goals such as financial stability, competitive markets, and privacy protection. With extensive user data and vast networks, regulators will eventually devise coordinated policies. As with all regulations, some will help to maintain competitive fairness while trying to ensure that technological advancements in finance continue to benefit and safeguard consumers effectively, others will hinder innovation and cause Big Tech firms big headaches.

Sources

Feedback Statement FS23/4 - The potential competition impacts of Big Tech entry and expansion in retail financial services (2024) FCA. Available at: https://www.fca.org.uk/publication/feedback/fs23-4.pdf (Accessed: 30 April 2024)

Fleming, C. (2024) Big Tech in finance: ‘big tech A priority’ says FCA, Bird & Bird. Available at: https://www.twobirds.com/en/insights/2024/uk/big-tech-in-finance-big-tech-a-priority-says-fca (Accessed: 30 April 2024)

FS24/1 – potential competition impacts from the data asymmetry between Big Tech firms and firms in financial services (2024) FCA. Available at: https://www.fca.org.uk/publications/feedback-statements/fs24-1-potential-competition-impacts-data-asymmetry-big-tech-firms-and-firms-financial-services (Accessed: 30 April 2024)

Khan, A. (2024) FCA looking at increased data sharing and Big Tech firms, FT Adviser. Available at: https://www.ftadviser.com/regulation/2024/04/22/fca-looking-at-increased-data-sharing-and-big-tech-firms/ (Accessed: 30 April 2024)

Navigating the UK’s Digital Regulation Landscape: Where are we headed? (2024) FCA. Available at: https://www.fca.org.uk/news/speeches/navigating-uks-digital-regulation-landscape-where-are-we-headed (Accessed: 30 April 2024)

‘Big Tech a priority’ says FCA chief executive (2024) FCA. Available at: https://www.fca.org.uk/news/press-releases/big-tech-priority-says-fca-chief-executive (Accessed: 30 April 2024)