Challenges for Financial Services Authorities in the Digital Era

Published on 24th December 2019

Increasing incidents of data abuse on social media platforms, security breaches and cybersecurity threats can sow mistrust and confidence deficits in digital systems. In our respective markets, these incidents are likely to reveal gaps in existing data protection and consumer protection regimes and the need to explicitly address ownership rights and permitted uses of personal customer information.

Prospects of digital profiling, and decisions driven by the use of complex algorithms can also result in financial consumers being unfairly discriminated against or targeted by unsolicited and unscrupulous marketing campaigns. Rather than delivering on its vast promise, digitalisation could instead become a polarising and divisive instrument. Take the provision of online credit, for example, the use of algorithm-based online credit scoring tools have led in some cases to assessments that are gender-biased, with female candidates consistently assigned lower credit scores compared to male counterparts of equal financial standing. Behaviourally, there is in fact evidence in Malaysia and likely elsewhere, to suggest that the opposite is true.

We can and must do better.

Proportionate laws and regulations must be in place to hold financial service providers accountable for establishing effective safeguards against the theft or abuse of personal data, and discrimination or unfair practices. The focus on consumer protection needs to shift from just addressing customer touchpoints, to the consideration of consumer needs much earlier in the product design process, in the formulation of distribution strategies or in the setting of risk limits. Predictive models used for decision-making must be subject to regular reviews against consumer outcomes and redress channels need to be aligned with the digital experience. Indeed, we should be concerned that while the delivery of financial products and services is taking on increasingly digital dimensions, when something goes wrong, processes for consumers to seek redress are still heavily manual in nature.

As for financial education, I am reminded of the old adage by Sir Francis Bacon: "Reading maketh a full man, conference a ready man, writing an exact man." Today's digital consumer - at least many of them - has neither the patience nor time to read, confer or write. In fact, this is almost the entire premise of digital financial solutions - brevity, speed and convenience. The short attention spans of financial consumers are further constrained by an overload of information and misinformation.

Digital solutions that can efficiently deliver financial education to masses of people, while simultaneously providing capabilities to tailor knowledge and information to one's personal circumstances (such as through loan affordability calculators), have gained increasing traction. However, the fact that digital interventions are more cost-efficient, accessible and scalable, do not automatically make them any more effective than more traditional interventions in the past that have failed to achieve a consistent and lasting impact in changing behaviour.

We need to develop reliable insights into behavioural influences that may help or prevent consumers from making good financial decisions. This sounds simple in theory, but is as complex as an understanding of human psychology itself. As our understanding evolves, the solutions that work best are likely to be a messy blend of digital and traditional, as well as mass-market and bespoke, approaches.

In navigating these challenges, there is much that we can learn from each other. No one has it all figured out. We each have successes and failures, and by sharing them, we can help each other move forward with greater confidence in a world that is constantly unfolding before our eyes with every new digital experience. We are therefore privileged and grateful to be able to gather such a diverse and distinguished group of speakers and participants to add to our collective body of knowledge and experience.

By Jessica Chew Cheng Lian,

Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia)

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