What role will artificial intelligence (AI) play in helping motor finance providers live up to the City regulator’s Consumer Duty expectations? Jason Sumner, managing partner of financial services firm Torc Partners explores the terrain.

Few players in the motor finance industry will be unaware of the new Consumer Duty requirements, introduced by the Financial Conduct Authority (FCA) and which involve consultation, discussion and new regulation.

Jason Sumner

Many firms have no doubt made good progress defining the framework for ensuring good customer outcomes required under the new regulations, and many may have worked out the right process to review the data, identify concerns and know how to tackle those concerns.

However, even when this framework is clear, two problems arise.

The first is that a) bringing this to fruition will involve an ongoing and extremely time-consuming process; and b) involve the crunching of an overwhelming amount of data to manage what is expected.

Managing the process and the data analysis on an ongoing basis can be tricky. There are numerous issues, from ensuring data reviewed, is fit for analysis, to making sure that data outcomes are able to evidence accurately the outcome for consumers.

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The regulator will be looking carefully at the results of the process undertaken by firms. “Making an effort” will not be sufficient. Deliverable, insightful, accurate outcomes, on an ongoing basis, will be required.

AI and financial services

Artificial Intelligence (AI) has been in the news recently with an interest in various generative AI solutions, such as ChatGPT.

This may overshadow the fact that AI is an incredibly powerful assurance and operational optimisation tool which can provide huge advantages, both output-wise and economically, to a regulated firm.

In October 2022, the FCA (and the Bank of England) surveyed regulated firms to analyse the uptake of AI in financial services.

The results showed that the use of AI is accelerating. 

  • Overall, 72% of firms responding to the survey reported actively using or developing machine learning applications.
  • That trend is expected to more than triple in the next three years. 
  • Firms reported that machine learning applications are now more advanced and increasingly embedded in day-to-day operations, with nearly eight out of ten firms in the later stages of development.

Consumer Duty compliance through AI

As recognised by the UK financial services regulators (FCA and others) when used properly AI can improve firms’ compliance with Consumer Duty requirements and ultimately create more positive outcomes for consumers.

It is certainly true that the power of AI provides a significant step change to how data can be viewed, managed, and predicted. 

Through machine learning, outliers are reviewed and fed back into the framework, and or process, to resolve, enhance and evolve.

Fluid learning enables a dynamic forward-looking focus for business, process, and governance.   It is ideal for self-supervision, with the resulting reduction in ongoing consultancy costs, but is also especially useful to demonstrate effective operational resilience.  

Data, data and more data

AI loves data. Its ability to analyse huge amounts of data is a significant ally in ensuring that products and services provided by motor finance firms achieve the required outcome of meeting the needs of consumers. 

It is important though that the model designed to implement the AI process and the ongoing training of the AI model are correctly prepared, for instance, that they are tested for bias (at a human level).  This is vital to ensure the best outcomes through its use.

Do I think AI is a game-changer?  Yes, it allows firms to create more accurate decision-making tools, develop new insights, and better products and services for consumers.  Firms can demonstrate they are meeting the needs of consumers, whilst also improving a firm’s operational efficiency.

AI is an exciting step change to tomorrow’s technology which is available for all organisations, today.