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  • Writer's pictureWilliam Webster

Bridging the Gap: How Generative AI Can Transform Regulatory Compliance for Boards

It's a well-known but seldom-discussed fact: Board directors of financial institutions rarely read all the documentation originated by the FCA. The challenge lies not only in the sheer volume of guidance and practice emanating from the regulator but also in their complex and often dry content. This is where generative AI, with models like ChatGPT and Claude, comes into play—offering a means to quickly produce nuanced summaries of lengthy documents.

 

Consider the dilemma further exacerbated by the nature of regulatory publications: not only are they extensive and tedious, but they also adopt a one-size-fits-all approach. This necessitates interpretation specific to the regulated entities, which in turn, weakens the board's oversight capabilities. Effective governance demands a comprehensive understanding of guidelines and policy statements. Without grasping the nuances of regulation, boards are unlikely to pose the critical questions needed to stimulate debate and challenge the business, ensuring that regulation is effectively enforced. This scenario highlights a communication gap between regulators and boards—a situation that, while blameless, leads to potential lapses in oversight and broader implications for stakeholders and the public at large.

 

So, how can generative AI improve this?

 

Take, for example, the FCA’s issuance of FG24/1: Finalised guidance on financial promotions on social media. Despite being one of the "lighter" documents at 45 pages, it's unrealistic to expect board members to engage with such material thoroughly. Traditional solutions have involved condensing these documents to a more manageable length, tailored to the business's specific needs. Yet, these summaries often end up either too technical or misaligned with the board's high-level needs.


Generative AI changes this dynamic. With minimal effort, an entire document can be fed into an AI model, which then produces a summary closely aligned with a business's needs, suitable for inclusion in a board pack.


As a demonstration, let's explore a simple AI-generated (Claude Opus) summary of FG24/1, this is for a Board of a small financial institution and it is written as a paper:

 

Dear Board Members,

 

I am writing to bring to your attention the Financial Conduct Authority's (FCA) recently published guidance on financial promotions on social media (FG24/1). As a small bank/building society, it is crucial that we fully understand and adhere to this guidance to ensure compliance, protect our customers, and safeguard our reputation. This paper outlines the key aspects of the guidance and how it impacts our responsibilities as a Board.


  • Consumer Understanding and the Consumer Duty The FCA emphasizes that financial promotions on social media must support consumer understanding by providing clear, fair, and balanced information about the benefits and risks of our products. This aligns with the new Consumer Duty principle, which requires us to deliver good outcomes for retail customers.

As a Board, we must ensure that our social media marketing strategies prioritize customer understanding and informed decision-making. For example, if we are promoting a new savings account on Facebook, we must clearly communicate the interest rate, any limitations or restrictions, and potential risks (such as variable rates) in a balanced manner. We should challenge our marketing team to demonstrate how their approach supports the Consumer Duty and customer understanding, rather than just focusing on business success metrics.


  • Prominence of Disclosures and Risk Warnings The FCA guidance stresses that specific disclosures, such as risk warnings, must be prominent and not obscured by the design features of social media platforms. This has significant implications for our oversight responsibilities.

For instance, if we are promoting a mortgage product on Instagram, the key information about fees, terms, and potential risks should be clearly visible and not hidden behind "see more" links or truncated by character limits. As a Board, we must scrutinize how our marketing presents these important disclosures and insist on full compliance with the prominence requirements.


  • Suitability of Social Media for Complex Products The guidance raises concerns about the suitability of social media for promoting complex financial products. As a Board, we must critically assess whether social media is an appropriate channel for each of our products, considering the target audience and the level of complexity.

For example, promoting a structured investment product with multiple features and risks on Twitter may not provide sufficient space for balanced and comprehensive information. In such cases, we should direct our marketing team to focus on more suitable channels or simplify the social media content to signpost customers to detailed information elsewhere.


  • Oversight of Affiliates and Influencers If our bank/building society engages affiliate marketers or influencers to promote our products on social media, we have a crucial oversight responsibility. The FCA emphasizes that firms remain responsible for the compliance of promotions made by affiliates.

As a Board, we must ensure robust due diligence, monitoring, and control processes are in place for any affiliates or influencers we work with. This could involve:


  • Setting clear guidelines and approval processes for affiliate/influencer content

  • Regularly reviewing affiliate/influencer posts for compliance and balance

  • Having the ability to quickly rectify or remove non-compliant content

  • Terminating relationships with affiliates/influencers who consistently breach guidelines

We should require regular reporting from our marketing team on affiliate/influencer management and be prepared to challenge any deficiencies robustly.


  • Non-UK Entities and Group Governance For banks/building societies that are part of international groups, the FCA guidance has important implications. Financial promotions from non-UK entities in the group that are accessible to UK consumers must still comply with the UK financial promotion rules.

As a Board, we must ensure effective governance is in place to mitigate the risk of UK customers being exposed to non-compliant promotions from overseas entities in the group. This could involve measures such as geoblocking, using UK-specific social media profiles, or having UK-based teams review and approve global social media content.


Conclusion


The FCA's guidance on financial promotions on social media has wide-ranging implications for our responsibilities as a Board. We must provide robust challenge and oversight of our social media marketing strategies, ensuring they prioritize clear communication, customer understanding, and good outcomes in line with regulatory expectations. Compliance with this guidance should be a standing item on our Board agenda, and we should demand regular reporting and evidence of adherence from our marketing and compliance teams.

By fully engaging with this guidance and embedding its principles into our governance, we can ensure our bank/building society harnesses the power of social media marketing in a responsible and compliant manner, protecting both our customers and our reputation.


Yours Sincerely, [Your Name]


My comment on this


While initially, the output may not perfectly meet your requirements, (international groups etc), a bit of trial and error can refine it to closely match the business's specific context. Moreover, generative AI can ask questions designed to promote board-level debate on the topic.


Claude again:

 

Dear Board Members,


Following on from my previous paper, I have compiled a list of 10 key questions for the Board to consider and discuss. These questions are designed to stimulate debate and ensure effective oversight of our financial promotions on social media, specifically in relation to our regular savings and mortgage business, our marketing channels, and our use of intermediaries.


Please find the questions below, prioritized based on their importance:


  1. How are we ensuring that our social media promotions for savings and mortgage products are clear, fair, and not misleading, and that they support customer understanding in line with the Consumer Duty?

  2. What processes do we have in place to review and approve social media content for our savings and mortgage products, including content created by intermediaries, to ensure compliance with FCA guidance?

  3. How are we monitoring and assessing the ongoing compliance and effectiveness of our social media promotions, and what management information do we receive to facilitate our oversight?

  4. What due diligence, monitoring, and control processes do we have in place for the intermediaries and affiliates we work with to promote our products on social media?

  5. How are we ensuring that the specific disclosures and risk warnings in our social media promotions for savings and mortgages are prominently displayed and not obscured by platform design features?

  6. What is our approach to selecting appropriate social media channels for promoting our savings and mortgage products, considering the complexity of the products and the target audience?

  7. How are we managing the risk of non-compliant or misleading promotions being made by intermediaries or affiliates, and what action would we take in the event of a breach?

  8. What training and guidance do we provide to our marketing team and intermediaries to ensure they understand and adhere to the FCA's social media promotion guidance?

  9. For any non-UK entities in our group, what governance arrangements do we have in place to ensure their social media promotions accessible to UK customers are compliant with UK rules?

  10. How are we staying abreast of evolving social media marketing practices and FCA expectations, and how do we plan to adapt our approach in light of new developments?

I recommend that we dedicate time in our upcoming Board meetings to discuss these questions in detail. We should also ask our marketing, compliance, and risk teams to provide their insights and evidence to support our discussions.


By actively engaging with these questions and challenging ourselves to maintain high standards, we can ensure that our social media promotions for savings and mortgages are effective, compliant, and always prioritize the best interests of our customers.


Yours Sincerely, [Your Name]

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What have we seen here?


The flexibility of generative AI to adapt to your business's context highlights its potential as a tool not just for summarisation but as a facilitator of meaningful governance discussions. This doesn't entail disclosing sensitive information; even basic prompts can yield valuable insights.

Indeed, the integration of generative AI into governance processes represents a significant leap forward. It streamlines communication between regulators and boards, contextualises information, and ensures that critical issues are both read and debated, thereby strengthening the oversight process. Additionally, this approach represents a time-efficient solution for all parties involved.

 

This exploration of AI in governance might not be immediately obvious, yet as we go deeper into AI's capabilities, the opportunities for enhancing operational efficiencies become apparent. This isn't knowledge that can be gleaned from a book; it requires hands-on practice to fully realise the benefits that are unfolding as technology advances.

 

Some may await a bespoke AI solution, believing it will prevent the need for experimentation and learning. However, such wishful thinking overlooks the competitive edge gained through early adoption and familiarity with AI. Delaying engagement with AI technology only widens the gap with competitors, potentially leading to costlier and less effective operational models.

 

If you've found this perspective interesting and beneficial, I'd be pleased to hear from you.

 

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