Thu 26 Jul 2018

Balancing statute and conduct - perhaps the juggling act is being recognised

An interesting speech was made last week. The author, Charles Randell, is a former lawyer who specialised in corporate finance law. He previously sat as an external member of the Prudential Regulation Committee. As of April 2018 he became Chair of the Financial Conduct Authority (FCA) and its subsidiary the Payments Systems Regulator (PSR).

Charles Randell was addressing the Reuters Newsmaker event on 11 July 2018. I've got to be honest and put my hand up. Until reading this speech, I had never heard of an algrocracy; a society based on algorithms making decisions.  He put forward that this was not an idea of science fiction but something that could be brought to life through the combination of three factors: big data, artificial intelligence and machine learning, and behavioural science.

Financial Technology - FinTech - is revolutionising access to financial services. Within Europe, the UK is leading the charge. The industry is fast moving and global. Where do ethics come into all of this? If the masses are to trust in these technologies it is not unreasonable for them to insist on fairness and transparency.

In his speech Mr Randell asked whether we are free and (with the help of Nicholas Carr's book The Glass Cage) what does being human mean? The FCA and the PSR both have a competition objective: the idea being that competition improves outcomes for consumers. They also operate on the basis that consumers should be empowered to make their own decisions. Should that assumption be unquestioned? Does overwhelming people with information really result in informed consent? These questions are debated on a daily basis by law firms, banks and FinTech providers.

After the painstaking work on GDPR it was bizarrely refreshing to see reference to US research that estimated the average person would spend around 250 hours a year reading privacy policies online, if they were to actually read them all. This research was around 10 years old. Goodness knows how many hours that would be today. Mr Randell recognises that the ordinary consumer may not have a lot of choice. Essentially they are ticking the box to get over the hurdle and to the next place: the place they want to be. He puts forward that regulation will be the key to whether consumers are liberated or disenfranchised.

Perhaps his lawerly days were in his mind when Mr Randell declared "Some may say 'caveat emptor'…". This is about the only latin phrase I recall from legal training, it means "buyer beware". I do think he is right to assert that our society does not seem to be heading for a world of buyer beware. He argues that for innovation to have sustainable benefit in society there must be three elements: purpose, people and trust. We don't want to get into a situation where life events turn on "the algorithm says no". We all need to question innovation. Firms need to connect to consumers to engender trust. Interestingly Mr Randell states

"trust requires good communication so that consumers understand and accept a firm's approach to using their data. By communication, I don't mean pages and pages of obscure disclosures, disclaimers and consents. I mean short readable statements that make it clear what firms will and won't do with their customers' data."

I wholeheartedly agree and think we'd all love that. The trouble is we are trying to meet the compliance obligations in other pieces of legislation. The balance between prescribed information that must be given and conduct strikes again. Firms have to balance the Consumer Credit Act 1974 (CCA) against the FCA Handbook. You could swap the CCA for the Mortgage Credit Directive (MCD), the Payment Services Regulations (PSR) or the GDPR. There is a constant balancing act. No one knows quite how the Financial Ombudsman Service (FOS) will view their work.

The views given by Charles Randell in his speech were personal and not those of the regulators he chairs. Perhaps there is a glimmer of hope that the continual struggle faced by lawyers and firms, when it comes to drafting and formulating process, is on the radar.  The industry does not want to treat consumers badly. It can however be hamstrung by other requirements.

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