FCA Outlines Plans to Use AI to Identify Mis-Selling

There have been many blogs/articles outlining the benefits of AI in the financial sphere. But now there is a move to utilise this technology in a different way.

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The Financial Conduct Authority (FCA) has recently outlined plans to use automation to stop independent financial advisors from mis-selling products. If an advisor makes a false or misleading statement about a financial product, this is classified as mis-selling, as are omitting facts or not outlining risks associated with any investment.

The FCA’s Richard Monks told a recent conference that he wanted to explore the idea of using machine learning and artificial intelligence (AI) to investigate companies or individuals that are likely to mis-sell products. The predictions would be based on a wide data pool, including publicly available data, data about complaints and historical records of approved persons and/or controls. Using big data could help identify the advisors who were likely to mis-sell.

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Digital Reporting

Monks added the FCA is also looking to further increase investment in the digital reporting of transactions. Wholesale markets already offer almost real-time transaction reporting and analysis, but retail transactions do not. By adopting digitised transactions for retail, the FCA could be notified almost immediately of any transactions that meet its pre-defined criteria of ‘dubious’, ‘potentially fraudulent’ or ‘potential mis-selling’. This type of digitisation would also reduce the costs associated with regulatory reporting, as a considerable amount of data could be centralised.

IFA Numbers

Regulatory returns showed that at the end of November 2017 there were a total of 25,951 advisors in the UK (with 5270 firms employing at least one advisor). This was a small increase on the previous year.

Better data would enable the FCA to concentrate on high-risk investments made by those firms/individuals that are flagged up by AI as more likely to mis-sell.