Following on from the recent speech by the FCA Chairman on Big Data (read our analysis here), the German Federal Financial Supervisory Authority (BaFin) has published a paper for consultation entitled "Big Data meets AI" that also outlines both the opportunities and the challenges that their use in financial services bring with regard to financial stability, market and corporate supervision and collective consumer protection.
The paper broadly agrees that Big Data and AI create additional opportunities for automating standard market processes. However, BaFin notes that this does not mean that responsibility for the outcome of Big Data and AI-supported processes should be shifted to machines. It challenges the view of algorithms as "black boxes" and makes very clear that senior management remains responsible for ensuring that they understand the technology they use and the likely implications of Big Data and AI across their target markets.
Similar to the FCA approach, BaFin stresses that consumers' trust is needed in order for them to provide their data. They must be comfortable the data will be used as disclosed, and in accordance with the law. For consumers, the use of Big Data and AI could make interaction with insurance companies easier, faster and more individualised. Firms must, however, do more to ensure consumers understand how their data may be used and how important or valuable it is. The BaFin paper also explores the role of the regulator in mitigating these risks to consumers, for example, by setting appropriate market standards to ensure transparent data processing.
Overall, the themes of the BaFin paper are virtually identical to those advocated by the FCA. As a result, firms with international operations would be well advised to ensure that they assess their use of Big Data and AI against these key themes of consumer understanding and consent, and senior management understanding and accountability for ensuring fair outcomes in deploying these technologies.
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