When the Financial Services and Markets Bill was announced in the Queen’s Speech in May 2022, we welcomed the proposals to support public confidence in financial services by ensuring continued access to cash across the UK.
The IFoA has highlighted the importance of managing the process of declining cash usage carefully. If discussion of a ‘digital pound’ turns to implementation, this should be part of a broader plan to manage the transition towards a less-cash society. We believe the government should ensure that the growing cost of using cash is not passed on to those vulnerable groups that still rely on it. We therefore welcomed giving powers to the Bank of England to take necessary actions to ensure the sustainability of the cash infrastructure.
We have encouraged HMT to initiate and deliver a comprehensive transition programme, to ensure as many people as possible are equipped to use electronic payments for a sustainable future.
The rise of artificial intelligence (AI) offers significant potential to the financial services sector and indeed wider society. Many of the benefits AI can offer are already being realised. AI is fostering innovation across a wide range of areas in which actuaries practice. These include general insurance, life insurance, and health and care insurance, as well as pensions, investment, and risk management. Over the next decade we expect use of AI to continue to grow, with increasing data availability and computing power.
AI’s potential to improve productivity within financial services is extensive. It includes automating time-consuming and repetitive tasks, more efficient and targeted customer service, and fraud and anomaly detection in financial transactions.
It is likely that AI will also lead to considerable displacement of roles within the financial services sector. There is however scope for individuals to reskill and focus on alternative, value-adding roles, including interpreting AI-generated outputs.
AI offers a range of benefits in financial services such as:
Wider benefits extending beyond finance include climate-change risk modelling and analysis, and use of AI in healthcare in early identification and treatment of cancer.
AI could be associated with discriminatory decisions, including in respect of individuals with vulnerabilities or with protected characteristics. This could be due to AI replicating existing biases. The ethical oversight of algorithms will be important in this journey.
Wider risks to financial service consumers potentially include:
AI could increase exposure to cyber risk. AI-driven cyberattacks can exploit vulnerabilities at scale and amplify potential impacts through the interconnectedness of systems and devices. Reliance on a small number of AI providers (such as large tech firms) could also potentially introduce systemic risks.
As it delves ever-deeper into our lives, AI raises significant questions over ethics and the public interest. AI can generate or exacerbate a range of challenges. Getting the balance right in terms of making the most of AI’s upside potential while having appropriate mitigants to the downside is relevant to the wider public interest.
We favour a broad principles-based, rather than rules-based approach to AI regulation. A key challenge is simply the (great) pace of evolution of AI technology. It is plausible that increasingly fewer people will be familiar with the latest technology as it emerges. The pace of evolution also means that a dynamic approach to AI regulation is necessary, although taking a principles-based approach should be better able to keep up with the pace of AI development. It is also important to focus on how AI tools are used in different contexts, for example in relation to regulation relating to consumer fairness or financial inclusion.
Any regulatory framework for AI should balance proportionate management of risk with encouraging innovation. Building and maintaining firm and consumer trust in AI is crucial. We also believe it is important there is adherence to global standards to ensure a level playing field.
The actuarial skillset includes critical thinking, judgement, risk management and understanding model limitations. This is very relevant to the development of AI, not only within the financial services sector but also right across society. We believe actuaries have an important role to play in the debate on the future evolution and regulation of AI. Collaboration between relevant professions and disciplines will also be key, as AI has a broad reach both within individual firms and across their respective sectors.
The UK is well-placed to be a leader in responsible AI adoption, provided that regulation balances innovation with robust consumer protections and ethical guardrails in place. The UK’s fintech ecosystem and globally recognised AI research and expertise should also help give the UK a comparative advantage.
In 2018 the Financial Conduct Authority began a series of consultations to strengthen consumer protection, recognising that ‘the extent and long-standing nature of consumer detriment indicate that cultural change is required within firms and the market as a whole’.
In 2021 the FCA proposed ‘a new Consumer Duty’, a reformed regulatory structure to tackle consumer harms. The FCA highlights harms such as exploiting consumers’ behavioural biases, offering products that do not meet consumer needs, discouraging consumers from leaving unsuitable products or services, and poor customer service.
The FCA published final rules for the Consumer Duty in 2022. They came into force in July 2023 for products and services open to new business, and from 31 July 2024 for closed products and services.
The IFoA supports the FCA’s focus on outcomes rather than compliance with rules, on enabling better decisions, and on the needs of consumers, especially vulnerable ones. We agree with the FCA that the four key elements of the firm-consumer relationship are communications, products and services, customer service, and price and value. Our consultation response highlighted the risk that some consumers may not like ‘good outcomes’, preferring ‘low prices in the short term’, which may allow such customers to insist on bad choices.
The FCA relies on levers such as fines for firms and redress for consumers to tackle serious misconduct regarding Consumer Duty. We have proposed that the FCA should apply sanctions against individuals for breaches that lead to widespread poor outcomes.
In December 2024 the FCA published its Consumer Duty focus areas for the rest of 2024-25. These include:
A University of East Anglia (UEA) study has found that hormone replacement therapy (HRT) could boost life expectancy among healthy women.
The IFoA-commissioned study is the first of its kind to look at the impact of HRT on overall life expectancy using UK primary care data. It followed 105,199 healthy women aged 46 to 65 years at first HRT prescription over up to 32 years. There was an average follow up of 13 years and it compared their outcomes with 224,643 non-users of the same age and GP practice.
This positive data is especially important because HRT has been controversial for many years, due to conflicting reports about the long-term risk of breast cancer. This research strengthens the emerging consensus that for most women the benefits of long-term HRT outweigh the harms.
Ahead of the second reading of the Menopause (Support and Services) Bill on 29 October 2021, the IFoA sent a briefing document to interested parliamentarians. Those included members of the All-Party Parliamentary Group (APPG) on Menopause. The group took the report into consideration as part of its inquiry into HRT, published in October 2022. Read more on the report.
The UK’s National Health Service (NHS) has identified population health management (PHM) as a key component of its long-term plan to develop integrated local healthcare systems that provide the right care at the right place and at the right time. PHM uses data to inform the development of interventions tailored to local at-risk population cohorts, aiming for improved outcomes with reduced unwarranted variation between cohorts.
The IFoA Population Health Management Working Party has been working with the NHS on impactability modelling, and is undertaking further work to build understanding around how actuarial science can support PHM in healthcare systems.