The Financial Conduct Authority’s chief executive has admitted that the regulator must improve its efficiency and plans to make major investments in data analytics to do so.

Andrew Bailey used last night’s Mansion House speech to address criticisms, stating: “We can point to very big achievements at the FCA in recent years – our work on high cost credit in its various forms being a well-known example.

“But part of the criticism we face is justified. We should improve our efficiency, which is why we want to make a major investment in data analytics to give our staff more effective tools to do the job.”

He did not expand on this point during the speech, but earlier this year the FCA’s Business Plan for 2019/20 had a particular focus on enhancing the use of technology and data.

“We also need to continue to capture new opportunities to use big data and advanced analytics as a regulator – the possibilities to harness AI to better understand markets, design effective regulation, and operate more efficiently are growing,” the document read. "We will use more advanced data analytics and machine learning techniques against money launderers and other financial criminals."

Late last year, the FCA also appointed a new director of innovation, who was tasked with driving “engagement with technological innovation within the financial services industry while developing, new, innovative and data-led ways of regulating”.

Bailey also addressed growth within the knowledge-based economy, most obviously for the importance of FinTech.

“For a long time we made speeches about the likelihood of innovation and what it might do to financial services, now it is really happening,” he said. “But, at least in one important respect, it is not happening exactly as many predicted.”

The tech economy is no different in terms of its specialisation, which is deeply embedded in innovation, commented Bailey, adding that it is more dependent on human capital rather than financial investment.

“There were predictions that this relative dependence on human capital and a skilled workforce would lead to an extremely footloose industry with less geographical concentration and less dependence on co-location because the internet is such an efficient medium of communication – this is a pretty standard prediction of traditional trade theory,” he explained, before adding: “To which, it is reasonable to respond ‘have you been to Hoxton recently’.”

Bailey argued that the industry should not take the location of the FinTech sector for granted, warning that “hubris is never a good thing” and noting that if people understand what supports it and has led to it developing, “we stand a better chance of nurturing it”.

He concluded by accepting that in trying to strike a balance between suitable investor protection and supporting the economy “we may rarely appear popular”, but this was the cross the regulator had to bear.

Also at the Mansion House City banquet, the chief executive of the Prudential Regulation Authority (PRA) Sam Woods spoke of its digital-led approach to barriers to growth for deposit-taking firms, focusing on complexity of rules.

The PRA has created a dataset on the thresholds which arise in its regulations, and used a 'robot' to analyse it, showing the number of thresholds that exist for deposit-takers and the metrics used to set these thresholds.

The PRA robot found that in 2017 there were about 700,000 words in relevant EU rules, the PRA Rulebook, and UK guidance, while the number of unique words in the rules has increased, as have the instances of conditional statements.

"Complexity in the rules is a challenge for small firms," said Woods, as he announced a consultation on a simpler regime with a graduated approach to capital requirements and the introduction of a “monitoring zone” between three to five per cent for credit unions with total assets less than £5 million.

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