We are blind without data
The importance of data is magnified in times of crisis when there is greater need for financial stability, integrity, and protection of vulnerable people.
Financial authorities around the world require regulatory reporting for financial services providers (FSPs) such as:
Commercial banks
E-money issuers (e.g. mobile money providers)
Payments service providers and operators (switches, card-issuers)
Non-bank financial institutions (e.g. microfinance institutions, insurance companies, mortgage finance, etc.)
Supervisors can analyse this data to understand whether FSPs are complying with prudential and market conduct regulations. As one supervisor said, “We are ‘blind’ to current industry practices, risks and vulnerabilities without supply side data.”
Times of crisis — such as the current global pandemic — create a greater need for financial stability, integrity, and protection of vulnerable people.
For example, regulators in countries such as Kenya and Ghana introduced policy responses to support the use of digital payments in response to COVID-19. Over three months later, we have identified three categories of data which could help regulators to see the impact of these policy responses and whether there were any unintended consequences for consumers or FSPs. These categories are:
Transaction data
Complaints data
Suspicious transaction reports
Read on to learn how regulators can use this data to protect consumers.
1. Transaction data
Regulators can use transaction data from FSPs to:
Pinpoint and control any risks associated with digital payments
Understand consumers’ use of different payment methods
Where transaction data is granular and disaggregated by transaction type, time, location, gender, etc., regulators can monitor trends and changes in consumer behaviour across the country or region, as well as investigate risks with precision and filter out suspicious transactions (see below for more information).
In Rwanda, the central bank worked with mobile network operators and banks to waive fees for digital payments for 3 months from 18 March 2020. In May, Cenfri’s early data analysis showed responsive spikes in person-to-person (P2P) payments. Within a month, total transaction volume increased five-fold to 3 million transactions and total transaction value increased six-fold to US$42 million. In absence of a counterfactual scenario, these upward trends may partially reflect the impact of this measure in accelerating the adoption of digital transactions.
2. Complaints data
Regulators (and FSPs alike) can use complaints data to:
Identify emerging and current risks, like an ‘early warning system’
Address any recurring failings in specific financial products and services, as well as overall business processes and staff behaviours
With granular and disaggregated complaints data, regulators can collect, aggregate and interpret complaints about FSPs based on the category and severity of the issue. Increased complaints about a specific FSP could prompt the regulator to scrutinise their behaviour more closely through offsite or onsite supervision, as well as impose administrative penalties such as fines when there is clear evidence of non-compliance.
Similarly, complaints data can shed light on consumers’ experiences with products and services and help regulators to develop consumer protection regulation and other responses to alleviate consumer grievances. For example, complaints data from the Consumer Financial Protection Bureau (CFPB) in the United States shows that consumers are struggling with COVID-19-related mortgage and credit card servicing problems. This type of data can help regulators to adapt or extend responses such as repayment holidays, loan restructuring and temporary restrictions on fees and charges.
3. Suspicious transaction reports
Regulators can collate and analyse suspicious transactions reports to:
Detect money laundering (ML), terrorist financing (TF) and other serious financial crime
Monitor large cash transactions and cross-border movements of currency
The Financial Action Task Force (FATF) reports increased money laundering and terrorist financing (ML/TF) risks arising from COVID-19-related crimes. These include increased misuse of online financial services and virtual assets to move and conceal illicit funds, and misappropriation of government emergency fund or international financial assistance. Equally, regulators such as the Financial Conduct Authority in the United Kingdom and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have recognised operational challenges and the need for flexibility during the pandemic, but also set expectations for FSPs to remain vigilant, gather additional data to triangulate evidence provided by customers, and continue to submit suspicious transaction reports.
Stay tuned for further discussions on mapping data needs to achieve policy objectives.
What we’re reading
Authors
Naomi Bourne
Alexis Ditkowsky
Aneth Kasebele