Opportunities arising from data aggregation in financial services

Out-Law Analysis | 23 Jun 2022 | 3:36 pm | 2 min. read

The world we now live in is swamped with data from a myriad of sources, affecting all aspects of our lives. The financial services industry is no different – with only a few paper based transactions remaining, financial services is data.

As well as being core to their products, financial services firms collect and manage huge amounts of data from sources as diverse as social media, mobile devices and the Internet of Things. Data science advances mean they have the opportunity to mine that data for information and insight – but there are also challenges inherent in managing the data collected.

Data-driven approaches driving better customer experiences

There are many data driven opportunities for financial services to pursue. Maximising the value of data can lead to new revenue streams, better customer communication and outcomes, better internal decisions, more effective collaboration, better risk management and greater productivity gains.

Those firms which truly adopt a data-driven approach can make a difference to their customers and shareholders. For example, data can help deliver personalised recommendations for products and services, and support customers in their transactions or investments so they are accessing the right products at the right time. This is particularly important against the backdrop of the Financial Conduct Authority’s recent work on the fair treatment of vulnerable customers.

Amid calls for more environmentally friendly and socially conscious investing, the combination of data from several sources could help show the true carbon footprint and climate risk of a company

Use of data can also help combat financial crime. For example, many financial services firms are using artificial intelligence (AI) tools to identify potentially fraudulent activity and act quickly to stop it – such as putting in place algorithms which will stop a credit card displaying unusual activity. This is particularly important given the rise of cybercrime and scam activity following the Covid-19 pandemic.

Another potential benefit for customers is greater accuracy and real-time information about the performance of their investments; and amid calls for more environmentally friendly and socially conscious investing, the combination of data from several sources could help show the true carbon footprint and climate risk of a company. 

Challenges and risks

However, there are some significant challenges faced by the financial services sector as it tries to benefit from data-driven opportunities. Attention needs to be given to the regulatory framework within which financial services businesses need to comply in their use of data.

That framework is not limited to complying with the General Data Protection Regulation and other applicable data protection laws.  Some regulatory requirements will take effect even in circumstances where data use is critical but does not relate to specific individuals.

The FCA's Consumer Duty, ESG and operational resilience requirements may all be relevant to the data management governance processes and controls which financial services businesses put in place. Ensuring that the provenance of data is known and does not impinge on the commercial rights of other organisations also needs to be addressed.  

These legal and regulatory concerns can become more pronounced where data collaboration opportunities arise. Where data sharing arrangements are in place, consideration should be given to the extent to which the financial services business has visibility over its collaboration partner’s data governance.

Potential data quality concerns including timeliness, consistency and the completeness of datasets could present significant risks to the usefulness of data if effective due diligence has not been undertaken of a potential collaboration partner’s data management arrangements. Ensuring that findings in due diligence also translate into contractual commitments to ensure the quality of data provided will also enhance the opportunity for maximising the benefit of the collaborative arrangement.  

Any financial services businesses moving forward with new data-driven strategies need to ensure that there is alignment within their business across key functions. This includes risk and compliance, legal and privacy, data governance and quality, information security and technology functions. 

There is good reason for all financial services businesses to have in place data-as-an-asset strategies in order to grow revenue and maximise the benefits that can be gained from data insights. Effective data management processes and controls which take note of the legal and regulatory landscape in which data can be used can provide a solid foundation for maximising the value of data and innovating quickly with it. 

Co-written with Hannah Ishihara of Pinsent Masons.

Rewiring financial services
Digital transformation is accelerating in the financial services sector, particularly in the wake of the global pandemic. As the sector moves towards new digital ways of working and engaging with customers, financial institutions and service providers need to make significant changes to respond to customer expectations. Digital is also changing financial products and services and can have significant impact on sustainability. We investigate the legal and regulatory landscape and highlight the digital opportunities for change.
Rewiring financial services