AI wars: a new hope or the phantom menace?
In this article, through the lens of the Financial Conduct Authority’s (FCA) Consumer Duty, we aim to dive into the practical uses of AI and review its evolution, strategic implications, and its wide-reaching effects.
The regulator strikes back
‘May the force(s) be with you’ – those of collaboration, innovation, insight, and leadership
The FCA’s Consumer Duty came into force in 2023. Ahead of its full rollout, the regulator said the following:
“The Duty is outcomes-based, and a key part of the Duty is that firms understand and evidence the outcomes their customers are receiving.”
The FCA is driving a seismic change in the way companies listen to, respect, and support their customers – and evidence this. It’s moving the dial from data standards and structured quantitative data towards unstructured qualitative ‘actionable insights’.
In calling for ‘fair outcomes’, the Consumer Duty demands, for example, a better understanding of complaints, improved fee transparency, and for the voices of vulnerable customers to be heard.
Truly a seismic change from static data to real-time sentiment and emotion.
Other regulators are watching, preparing their plans and are ready to implement similar rules.
Make no mistake, the Consumer Duty, perhaps under different names, will be coming to a regulator near you soon.
Use the force
When evidencing an understanding of and adherence to the Consumer Duty, the FCA doesn’t only want to see, for example:
- A 100+ page business requirements document or project plan.
- A multi-year “know your customer” technology and/or data remediation programme (unless significant issues have been uncovered and this document can help to demonstrate that the firm’s accountable executive is taking reasonable steps to address the root causes).
- A report showing how many people completed a mandated “customer culture” multiple choice training exercise.
It will be looking to companies to prove that they understand the essence of the Duty in driving firm-wide change to focus on the customer. It will want to see:
- Companies listening to the unbiased voices of their customers.
- Companies identifying actionable insights in real- or near-time and being able to demonstrate that it is acting on these.
- Clear and simple results based on the actions taken from these insights.
- This type of data being democratised throughout the company to embed a customer culture.
The Consumer Duty has given an impetus to AI. It will continue to become an increasing force in enabling companies to manage their competing priorities of shareholder value, customer and employee satisfaction, and regulatory compliance. Indeed, AI can be a converging force, delivering benefits across all of these areas.
Fintechs and forward-thinking financial institutions are already aggressively incorporating AI into their core strategies and technology solutions.
Large investment managers wield predictive analytics and automation, reshaping traditional landscapes and revenue streams to better understand their customers and respond to their needs. Improved lifetime value lies down the path that these companies are taking.
In the wealth management space, AI is increasingly used to personalise financial advice. This isn’t ‘robo-advised’ as we have known it. This is the ‘bespoke and situational’ robo-informed solution that the Consumer Duty is driving.
Global banks are leveraging the Consumer Duty to highlight their AI-driven fraud prevention solutions, where risk reduction (and cost reduction) can help set the platform up for increased wallet share and revenue generation.
The data menace
While the promise of AI is compelling, the journey to implementation can be a long one and the vision can seem a distant dream.
Many organisations, especially those ‘conglomerates’ that have been brought together by VCs and holding companies, face data challenges. Do you really ‘know your customer’ when your customer data sits across multiple systems and has a variety of inconsistent and unconnected naming conventions?
In these (and many other) organisations, data-related challenges take centre stage, with the quality and accessibility of data posing significant obstacles. As we’ve previously mentioned, for investment managers relying on data-centric AI applications, access to high-quality data is paramount. Conversely, payment providers, focusing more on process automation than the creation of new value propositions, face fewer (and different) data-related hurdles.
AI: a new type of Jedi is needed
Technological maturity and cost present additional hurdles. The rapid evolution of AI technology necessitates up-to-date and capable infrastructure, demanding ongoing investments. Access to skilled talent is a constant challenge, particularly for innovation leaders with advanced AI aspirations and implementations. There’s a new war for talent, this time reflecting the specialised skills required for developing and managing sophisticated AI solutions.
Addressing these challenges requires a multifaceted approach. Improved data management practices, transparency in AI systems, investments in technological infrastructure, and the cultivation of AI-specific talent are all crucial steps.
The guiding lightsaber
The FCA wants the Consumer Duty to be a guiding light and, we believe, AI is (perhaps unintentionally) at its core.
The gaps in consumer protections cry out for evolving regulatory frameworks, with industry bodies and risk and compliance teams entering the fray, all aimed at understanding the foreseeable harms and safeguarding consumers in this revolutionary landscape.
We must move forward from ‘conscious ignorance’ and measuring reactivity in months to being proactive in real- or near-time to ultimately being predictive. It is impossible to make this seismic shift with legacy technology stacks and/or by simply adding more people.
AI provides both the framework and the solution to accelerate this shift.
We cannot continue to, for example, treat ‘vulnerability’ as either an additional onboarding flag or a (dangerously) lagging identifier. Using AI, we are able to identify the sentiment and emotion of every call, email, or chat session. We can escalate, proactively contact the customer, and find a solution. This is what the FCA wants to see.
Conclusion: don’t be the last Jedi
The integration of AI into the financial services sector signifies a fundamental shift in operational, strategic, regulatory, and competitive paradigms. As stakeholders navigate hurdles, from data challenges to regulatory compliance, embracing this change is imperative.
The dawn of AI isn’t just a new chapter – it’s a transformative era heralding technological empowerment and strategic redefinition. To fully leverage AI’s potential, organisations must carefully strategise, address challenges, and reshape the landscape for their tech-driven futures.
‘May the force(s) be with you’ – those of collaboration, innovation, insight, and leadership.
About your Jedi Master authors
Richard Jeffreys is the founder of CX ALL, a customer experience advisory company.
Richard has over 35 years of global leadership experience in banking and fintech, living and working in the US, Europe and Asia. He is passionate about customer and employee satisfaction and their correlation to sustainable commercial value.
Follow Richard on LinkedIn.
John Martin is the founder and CEO of Plutus Consulting Group.
John, with over 30 years’ global specialist banking and financial services experience, has a track record of strategic and operational leadership of large and small-scale corporate M&A, ESG, and business transformation programmes, delivering multi-million-pound operational efficiencies by creating shareholder value, building, and leading teams through transformative change, mitigating regulatory risk, and reducing operating costs.
