The Joint Committee of European Supervisory Authorities (ESAs) analyzed the impact of large sets of data on consumers and financial institutions and concluded, that despite the potential risks arising from the use of Big Data, the benefits outweigh the potential costs.
The popularity of large sets of data, known as Big Data, is quickly growing thanks to the lower costs of their processing, storage and analysis. The large sets of data are also increasingly being used by institutions operating in the financial services sector, and in particular in banking, insurance and trade in securities.
Big Data also includes technologies and procedures used to process and analyze data in order to obtain income-generating information, to detect repetitive patterns or correlations, to create new ideas or solutions, or to predict future events in a more accurate way.
Due to the use of Big Data technology, all types of services and financial products may be transformed. Big Data can be used i.a. for consumer profiling, customer relationship management (including the monitoring of customer preferences for products and services or financial institutions), assessing customer creditworthiness, counteracting fraud, identifying clients, and supporting business decisions.
The use of Big Data may also affect the development of cross-selling of various products and services (especially within financial conglomerates), services based on behavioral patterns, or support the fulfilment of supervisory requirements.
Monitoring of the emerging threats to consumers and financial institutions, as well as taking appropriate measures to promote consumer protection and the security of financial markets, is the task of the group known as the European Supervisory Authorities (ESA). It includes the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.
The Joint Committee of the ESA published a report on Big Data, analyzing its impact on consumers and financial institutions. The report was based on the responses of the participants of public consultations on the Use of Big Data by Financial Institutions.
The authors of the report conclude that Big Data brings many benefits for the financial industry and consumers, such as more tailored products and services, more effective fraud prevention measures, or enhanced efficiency of the internal organizational procedures.
On the other hand, the consumers of financial services should be aware of some of the risks posed by Big Data. The risks identified by the European Supervisory Authorities include i.a. the potential for errors resulting from the tools used to analyze large sets of data, which may lead to incorrect decisions being taken by financial service providers. Additionally, the increasing level of segmentation of customers, enabled by Big Data, may influence the access and availability of certain financial services or products.
The authors of the report emphasize the importance of the existing regulatory requirements for the financial sector, also in other areas such as personal data protection, digital security and consumer protection. The ESAs are of the opinion that for now the legal requirements in these fields provide a fairly robust framework that should mitigate the identified risk areas. In addition, the existing regulatory requirements will be further strengthened by the entry into force of several legal acts important for the financial sector (such as IDD, MIFID II, PSD2) as well as regulations concerning data protection (and in particular GDPR).
Therefore, any additional legislative intervention would be premature at this point, but the development of Big Data technology and its use by financial institutions should be monitored. At the same time, the ESAs encourage financial institutions to develop and implement good practices in the use of large sets of data to promote fair and transparent treatment of consumers.