The European Baking Authority has set out the key challenges to emerge from the growth of Big Data and advanced analytics, including machine learning , across the financial services sector.

The EU’s banking regulator’s report identifies key trends taking hold as banks embrace financial technology, Open Banking and other Artificial Intelligence (AI) and data-driven processes. It also recommends safeguards to ensure “technological neutrality” in the use of advanced analytics.

The document sets out four key pillars - data management, technological infrastructure, organisation and governance and analytics methodology – necessary to support the rollout of advanced analytics, along with a set of ‘elements of trust’ such as ‘explainability’ which are required to meet ethical and regulatory standards.

A statement from the EBA said: “A ‘data-driven’ approach is emerging across the financial sector, affecting institutions’ business strategies, risks and operations with respective changes in the mindset and culture still in progress.”

The EBA said it had observed a fast growing interest in the use of Big Data and advanced analytics solutions across the sector, with two out of three credit institutions already developing solutions involving these technologies.

The regulator said that all functions across financial services institutions stand to benefit from applications of Big Data and advanced analytics, with advantages including efficiency, productivity, cost saving and new business opportunities.

“In general, most institutions are currently using simpler algorithms, leveraging on their core banking data. However, the current landscape can evolve in a rapid pace in the next few years,” the report said.

The smooth roll out of advanced analytics would dependent on banks being able to take an approach involving the following “elements of trust” that need to be properly and sufficiently addressed: ethics, explainability and interpretability,fairness and avoidance of bias, traceability and auditability, data protection, data quality, security, and consumer protection.

The EBA said it was “of the view that additional efforts are needed to ensure that BD&AA solutions respect and integrate these elements of trust. For example, stricter requirements may apply on the “explainability” element when there is a potential impact on business continuity or potential harm to the customer.”

The EBA said will continue monitoring the developments in line with the pace of employment of new technologies in financial services and, where appropriate, will perform additional work to enhance supervisory consistency and facilitate supervisory coordination.

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