COVID-19 is “bringing the future forward” and ushering in a new model for financial regulation and use of technology and data, according to the interim chief executive of the Financial Conduct Authority (FCA).

In his final speech before stepping down before Nikhil Rathi takes up the reins, Christopher Woolard said the pandemic has sped up some of the longer term trends such as digital transformation that are “shaking up” the world of work, society and the financial system that underpins them.

“COVID has accelerated consumer adoption of tech-enabled business models - it is not just Amazon that has experienced a significant increase in internet traffic, it is banking apps too.

“Consumers’ and businesses’ retreat from cash has immediate implications for the bank branch and ATM network, but while the tech savvy benefit, a whole range of people, not just the older and poorer, risk being left behind,” he warned.

The co-operation between the regulator and bank branches that has enabled customers to continue accessing banking services even as “the rest of the High Street switched out the lights”, would be critical to ensuring the digitally excluded do not become the cash excluded, Woolard said.

He also warned that the regulator needed to be “even more conscious” of the changes technology is having on the financial services sector; and will have in the future.

Citing machine learning and artificial intelligence, Woolard noted that algorithms are often portrayed as some sort of panacea, solving business need and consumer service.

“Algorithms have come in for some bad press lately, but they are only as good as the inputs and data they rely on, what outcomes do they deliver? What outcomes were intended? Do they exacerbate the biases inherent in society?” he asked.

Referring to a speech made by Bank of England governor Andrew Bailey on the potential of a central bank stablecoin currency, Woolard said “the answer to new tech is not to pull up the drawbridge", rather it is for the regulator to discriminate. "To do that effectively, we need a fuller understanding of the tech and its benefits, weighed against inevitable risk.”

He said he was pleased with the progress made by Project Innovate, the FCA’s regulatory sandbox, and latterly the global financial innovation network of over 60 regulators and other organisations.

However, he pointed out that when it comes to helping smaller companies “large datasets are often a barrier to new entrants being able to design and build products”.

Turning to regulatory changes on the horizon, Woolard said one of the key changes was is how the FCA uses data and analyses the intelligence it receives.

“You cannot hope to effectively regulate 60,000 firms, most of them small, as we do, unless we make progress on this front,” he stated, explaining that a new data strategy involving data literacy was being embedded across the organisation.

Finally, he said that the FCA’s own requirements should be more straightforward, especially for smaller firms.

“We need to make sure the rulebook isn’t analogue in a digital age - I believe those arguments still hold and COVID-19 has shown they are even more urgent,” he concluded, adding: ”We need to look at whether our handbook of rules is doing what it needs to do, and amend if necessary.”

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