Updated: Aug 3, 2018
On 16 July, the German Supervisory Authority, BaFin, published its study on big data and artificial intelligence and its challenges and implications for the supervision and regulation of financial services.
Successful Big Data and AI applications are self-reinforcing and can spread rapidly
The relevance of Big Data and AI is growing as technology, companies and consumers interact. First, current technological progress facilitates the extensive and practical use of Big Data and AI. Second, companies are increasingly relying on data and the value they extract from it to optimise their business models and processes. Third, consumer behaviour is increasingly shaped by digital applications, which in turn boosts the generation and availability of data. The last two points in particular can have a strong, self-enhancing effect on one another. In many parts of the financial services industry, this self-reinforcing development associated with the use of Big Data and AI is still in its early stages; however, the assumption is that the pace of this development will increase rapidly.
Big Data and AI facilitates innovation
Combining analytics and the mass of data available helps generate new insights, which can then be used within the financial system to facilitate product and process innovations. Innovations such as these can have a disruptive impact on existing value creation processes. As a consequence, new providers can enter the market and established business processes and market structures can change.
Innovative developments require supervisory/regulatory attention at an early stage
This report addresses the potentially profound impact that Big Data and AI technology can have on the financial services industry. We have drawn on market analyses and use cases to outline both potential developments, as seen from the perspective of banks, insurance companies and the capital markets, and the impact on consumers. Experts from the fields of science and research were involved in preparing this report. This comprehensive view lays the foundation for deriving both supervisory and regulatory implications and key issues.
In examining how Big Data and AI is used in the financial services sector, the report distinguishes between three main groups of providers:
traditional companies (incumbents), in particular supervised firms, such as banks and insurance companies
comparatively young, technology-oriented providers with specific offerings, some of which are directly supervised (fintechs/insurtechs/regtechs/legaltechs)
and large, global technology companies (bigtechs), most of which have not been subject to supervision to date