By Carly Phillips-Jones

On 30 March 2022, the FCA published a call for input on the use of synthetic data to support innovation in the financial services sector.

In its call for input, the FCA notes the importance of protecting customer data and the right to privacy as financial services become more digital. However, it also recognises the extent to which data can drive valuable innovation, particularly in relation to automation, improved decision-making, risk management and personalisation of services and that whilst data privacy laws are critical to the protection of consumers, lack of access to financial data can inhibit the development of new products and services. 

The FCA considers overall that innovation has the potential to deliver societal benefits such as greater market efficiency and integrity, financial inclusion, and the prevention of financial crime.

The FCA also summarises some of the key barriers to accessible data sharing in the financial services industry that it has identified, these include:

  • The availability and accessibility of artificial intelligence.
  • Data privacy laws and protection of the privacy of the consumer.
  • The complexity of due diligence and onboarding processes to access data.

The FCA is interested in solutions that will enable greater data sharing for the purposes of competition, without undermining data protection laws that are in place to protect consumers.  

The FCA would like to conduct an introductory exploration of market attitudes towards 'synthetic data', and its potential for opening data sharing between firms, regulators and other public bodies.  The benefit of using synthetic data is that it simulates real data without identifying individuals, therefore as long as it is processed correctly, data protection obligations such as GDPR, do not apply.

Synthetic data is already used across other sectors, such as robotics and autonomous vehicles, and there is a growing level of exploration within financial services. It has previously been explored by the FCA through TechSprints, and more recently the Digital Sandbox pilot, where it has sought to alleviate the data access challenge by making synthetic financial data available to participating firms.

The FCA has requested that stakeholders share their views, including responses to its questions, by 22 June 2022. Following receipt of responses the FCA plans to publish a Feedback Statement setting out its analysis, key findings and any next steps.