Recently, due to the pandemic we have relied on technology heavily and we have used technology to enable us to carry out more and more of our daily lives. Technology affords many benefits to people, and society, and often it is seen as a solution to problems.
Technology can also be viewed as the cause of some societal issues and it is hard to see in all instances, the possibilities technology can hold. Technology and its overarching industry can also be part of a power struggle between different groups in society. It is therefore difficult for policy makers to regulate effectively and to know to whose benefit the regulation is for. During the pandemic, we have seen more and more people having financial difficulties (Citizens Advice Bureau, 2020; FCA 2020; Gov.UK 2020). Financial difficulties can lead into people becoming excluded from mainstream financial services.
A question that has been asked recently, is how technology and regulation can work together for the benefit of society and individuals? A further question is whether Artificial Intelligence can be used to help those who are financially excluded from the financial marketplace? (Libra White Paper 2020).
Financial exclusion is an endemic problem. Academics and governments alike have conducted research into the enigmatic area over decades and little meaningful corrective progress has been made. People often described as being financially excluded are those who lack access to financial products such as bank accounts, savings accounts or access to credit. (HM Treasury, 2019, a, b,c, p. 2). There are many reasons for their lack of access to financial services and therefore creating a solution is very problematic. (Kempson and Whyley, 1999a, b) Financially excluded people may also be vulnerable consumers, they may be digitally excluded, they may exhibit social exclusion characteristics, they may have language barriers, they may not want to be in the system, or they may have psychological problems. (Financial Inclusion Commission 2020). There are no standard characteristics which amounts to a person being financially excluded. (Devlin 2005). It is very much on a case by case basis. Regulating for all these variances is fraught with difficulties and financial service firm’s compliance obligation is to ensure a basic standard of care is given to all consumers. The Financial Conduct Authority also places special obligations on financial service firms to ensure vulnerable consumers are provided for (FCA GC20/3 2020). Yet these standards and obligations do not go far enough to have a meaningful benefit for financially excluded people.
How can technology, or more specifically, Artificial Intelligence (AI) help to provide financial services to those who are excluded? (Johnson et al, 2019, p.504). This again is not a straightforward answer and its possible solution has many variables. AI, as we know, can handle large amounts of data sets with information pertaining about us as consumers, and individuals. A theoretical way AI could work as a means of including people is because it can be used outside of the mainstream control of centralised power. (ITU, 2017). It can create the rules in which boundaries are drawn making some people included and some excluded. The lack of centralised power can determine different factors which determine whether someone is a good or bad credit risk by examining different aspects of their credit history; whether they live in a poor or affluent area or what forms of ID are necessary to prove you are an entity. AI can re-draw the parameters of social presumptions which often means people lack basic financial products. This is the benefit of AI. However, we live in a society where innovation, if seen as effective, is brought under the umbrella of the collective society and as such power is moved from the innovator to the centralised authority. It is governmentalized. It is the paradox of what decentralised financial innovation is created. The European Commission (2018)
It should be questioned as to whose benefit is this regulation? Financial exclusion will never be fully eradicated, and it is questionable as to whether there is political, governmental or industry support for banking the unbanked or supporting the consumer generally. The only way to solve exclusion is to be inclusive and for the government and the financial industry, it does not pay to include the unbanked in mainstream financial services. The way finance works is by riding on the back of debt. To include the unbanked will cost more than by regulating in such a way as to maintain financial exclusion.
By regulating financial innovation and bringing it under the control of the state has its perceived and published benefits. We are told that AI could be mis-used. Products could be mis-sold to consumers. Financial crimes, such as money laundering or terrorist financing could take place through access to different services which lacked necessary anti-money laundering controls. AI could be used to breach privacy law, or Human Right laws. Therefore, if we consider mainstream logic, law and morals, does the technology needs to be bought under the control of the central authority to ensure the benefit of society? If AI is bought under the control of the state, will the innovation characteristics be lost and thus does not allow for other financial classifications to be considered which could allow the banking of the unbanked? This may mean that the financially excluded will forever remain on the outside of the financial market-place. By regulating innovation, it could mean that the benefit to the financially excluded is once again lost amongst the benefit for the many.
It does not have to be.
Governments and policy makers are in a unique position to write adaptive, innovative regulations which do not stifle innovation and are forward looking; the technology does not lose its unique characteristics and all sectors of our diverse society can be considered. The regulation needs to be free from coercive state control masquerading as safeguarding polices. This, in itself is, logically and legally unacceptable. Regulation in whatever form, codified or self-regulation is still a form of power or control over people from state or an organisation. The ideological beauty of current innovation in finance is the lack of central authority control. (Randall, 2018).
Governments and institutions need to look at financial exclusion and accept that there is no one umbrella solution, but different regulatory and technology advances can make positive steps for some who are excluded. They need to come clean and acknowledge that to include the excluded does not pay. What needs to be done is to try to mitigate the harm caused to some due to regulations. Whatever can be done to minimise financial exclusion needs to be allowed to be done. This could mean allowing people to have credit scores based on differing aspects of their financial life. It means not having a one size fits all system. Control needs to be loosened and other state actors need to step in to provide financial assistance to those who want or need it.
Regulation, in whatever form, needs to be mapped against this acceptance that there is financial exclusion. It will not go away as it is part of the state-controlled mechanics of finance. What will happen is that financial exclusion will continually be a topic of importance, but nothing will ever be done to eradicate it on a wholesale scale. Regulations will continue to exclude some, and the mainstream system will not work for everyone. These mainstream regulations will be written in language which is unable to be used by consumers to help them gain ground in the financial marketplace. Regulators will put in place systems and controls ensuring rights and freedoms of all of society are covered in relation to new technology but, for some, this will never be enough.
Dr Clare Jones is a Senior Law Lecturer at The Open University Law School. Clare is a member of the Open Justice Centre and is Co-founder of the Law, Information, Future, Technology (LIFT) research cluster.
Email Clare, or tweet @DocChambers or @OU_LIFT.
Dr Clare Jones and Dr Robert Herian are currently advertising for prospective PhD students within this area and would welcome applications and interest.