How do technological developments in data processing and analysis impact the financial sector? What are the implications for financial stability, market supervision, firm supervision, and collective consumer protection?

The “Big Data meets Artificial Intelligence” report, which BaFin published on 15 June 2018 , helps to answer these questions.

It contains the results of a study involving experts from Partnerschaft Deutschland, The Boston Consulting Group (BCG) and the Fraunhofer Institute for Intelligent Analysis and Information Systems IAIS. The aim was to obtain a comprehensive picture that will enable BaFin to identify strategic trends, market developments and newly emerging risks at an early stage and to address them appropriately. The report highlights the implications of technology-driven market developments from a range of regulatory and supervisory perspectives.

“The results clearly show how important it is for us to address these issues from a supervisory and regulatory perspective”, stresses BaFin President Felix Hufeld. “The race to innovate in the field of financial data has already begun. And it is already becoming obvious that systemic dependencies on BDAI companies, meaning market participants who are specialised in the use of Big Data and Artificial Intelligence, can arise outside the regulatory framework.”

Responsibility, transparency and trust
In light of the accelerated automation of processes, BaFin concludes in the report that management cannot automate or outsource its responsibilities, also with regard to BDAI applications. Complex models may not be allowed to lead to a lack of transparency in decision-making and to stand in the way of a proper business organisation.

BaFin also believes that important conclusions can be drawn with a view to consumer protection. Customers need to be made more aware of the value of the data they reveal and who is able to use that data. Consumer trust is crucial. It is also key to the success of BDAI innovations. That is why it is important to promote a framework for genuine data sovereignty.

Competitive opportunities
From a market perspective, the study shows that Big Data and Artificial Intelligence offer significant competitive opportunities for both existing and potential new market participants. These opportunities result primarily from the increased disaggregation of the value chain that is now enabled by these technologies.

“We are expecting a higher degree of decoupling between the customer interface and core processes in particular. This is being strongly driven by changing customer expectations,” says Gerold Grasshoff, Senior Partner and Leader of the Germany and Austria Financial Institutions Practice at BCG. “It creates more efficient and more effective operating and business models for financial services providers, but these will require both new technical expertise and new professional skills.”

At the interface to the customer, for example, new opportunities are emerging for personalised offerings and for broader transparency of market offerings. At the same time, regulatory changes such as the Second Payment Services Directive are opening up access to the customer interface for non-market players. In the core processes, case studies highlight considerable potential for enhancing efficiency and effectiveness.

Source: BaFIN