The financial regulators in Europe are worried that tools and techniques of big data might result in confining consumer access to services and products in the future, and are giving thought to whether new rules to tackle the probability of granular algorithmic analysis resulting in discrimination.
While companies dealing with European Union customer’s data have to act in accordance with national regulations and EU, including competition rules, data protection law, consumer protection, there doesn’t exist any regulation specifically for the financial services domain.
The financial regulators have expressed their thoughts in a discussion paper which includes both pros and cons of big data analytics being increasingly implemented to personalize and shape financial services and products. For the positive side, they wrote that leveraging big data is going to help companies to offer a customized and cost-effective products and services to their customers. However, on the negative side, regulators are concerned about the probability of same big data analysis techniques influencing customer’s access to services/products- and later, being used by financial firms. Case in point- financial organizations can inform pricing or rating practices who could exploit the detailed information or knowledge of a consumer’s willingness to switch products by paying more.
Other possible risks could be security concerns and errors in analytics tools which, according to the regulators, will lead to “reputational and legal risks for financial firms”. Another possible negative aspect that they are raising includes the risk of customers on the lookout for household insurance, specifically for properties located in those areas that are exposed to earthquakes or floods- What if they are not offered any kind of insurance cover or even if they get, have to pay high premiums?
“Wearable devices and smart homes might create even granular classification of risk and increase the effectiveness and chances of risk-selections”, one of the regulators said.
After evaluating public feedback on the same- which can be submitted through the official website of ESMA, they will see whether any action is required or not.