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European Banking Authority contemplates the use of consumer data by financial institutions

By Scott Baird & Norman Roos on May 12, 2016
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In order to better address both the opportunities and risks associated with the innovative use of consumer data by financial institutions, the European Banking Authority (EBA) released a discussion paper last week seeking public comments on the subject.

The EBA notes in the paper that the increasing digitalization of the economy and the adoption of computing technology that is able to draw inferences from seemingly unrelated sets of data “is generating a new wave of opportunity for economic and societal value creation.” By using “big data,” financial institutions are able to offer cost-effective targeted advertising, more accurate credit-worthiness assessments, and better financial advice to their consumers. Consumers benefit from lower costs, enjoy precise insight into their financial situation, and are potentially better protected from fraud. As an example of fraud protection, the EBA points out that a financial institution which knows where a consumer lives, where she normally shops, what she typically buys, and the amounts she routinely spends is better able to spot a fraudulent transaction, protecting the consumer against financial loss.

However, the innovative use of consumer data by financial institutions also presents new risks. The EBA notes that the potential for data theft and identity fraud is ever present as financial institutions continue to gather more and more specific consumer data. Consumers may also be harmed when financial institutions sell data to third parties or rely on inaccurate data to make financial decisions. Even absent any malicious misuse of data, “consumers may be hindered from choosing a different provider for the provision of financial services” if financial institutions do not allow for the portability of consumer data, resulting in consumers being “locked-in” to their relationship with their financial institution.

The EBA notes a number of additional opportunities and risks presented by the innovative use of consumer data by financial institutions. The full discussion paper is available here.

Photo of Scott Baird Scott Baird

Scott M. Baird is an associate in the firm’s Business Transactions and Finance Groups, where his practice involves all aspects of corporate and securities law, including corporate governance, mergers and acquisitions, private equity and venture capital transactions, joint ventures, finance transactions, and securities…

Scott M. Baird is an associate in the firm’s Business Transactions and Finance Groups, where his practice involves all aspects of corporate and securities law, including corporate governance, mergers and acquisitions, private equity and venture capital transactions, joint ventures, finance transactions, and securities law and compliance. He focuses on new legislation as well as regulatory and compliance matters involving financial service institutions. Read his full rc.com bio.

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Photo of Norman Roos Norman Roos

Norman Roos, a member of Robinson+Cole’s Business Transactions Group, concentrates his practice on transactional, regulatory, and technology matters relating to the financial services and real estate industries. He is also a member of the firm’s Financial Services Cyber-Compliance Team and advises financial institutions…

Norman Roos, a member of Robinson+Cole’s Business Transactions Group, concentrates his practice on transactional, regulatory, and technology matters relating to the financial services and real estate industries. He is also a member of the firm’s Financial Services Cyber-Compliance Team and advises financial institutions concerning data privacy and security matters, particularly in relation to policy planning and implementation.

Mr. Roos is counsel to the Connecticut Mortgage Bankers Association, Inc., and is president-elect of the American College of Mortgage Attorneys where he has served on the Board of Regents and as Connecticut State Chair. A member of the Connecticut Bar Association, Mr. Roos is Past Chair of the Financial Institutions Law Section. He has served on a number of Connecticut Law Revision Study Committees including those on Uniform Common Interest Ownership Act, Electronic Communications, Mortgagor Liability, and Electronic Recording of Land Records. Read his full bio here.

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  • Posted in:
    Administrative and Regulatory, Banking, Finance and Securities
  • Blog:
    Data Privacy + Cybersecurity Insider
  • Organization:
    Robinson & Cole LLP
  • Article: View Original Source

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