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Beware potential risks in big data

Big data enables far more detailed, tailored analysis of performance, behaviour and markets – but what are the potential risks? A report highlights some of the dangers – as well as the benefits. 

A group of European financial authorities has warned of the potential risks of big data to financial services consumers. The Joint Committee of the European Supervisory Authorities (ESAs) published its report on big data to map the phenomenon of big data and assess its potential benefits and risks. The report's aim is to raise awareness of the rights of users of financial services and to remind financial institutions of their obligations, as well as encouraging the adoption of good practices on big data.

4 big data risks

In the big data fact sheet accompanying the report the ESAs outline some of the risks of big data in financial services – and they are issues that not only affect consumers but could also pose a risk for organisations that use big data in their analysis or are rated externally on the base of big data. The risks to be aware of include:

  1. Big data tools can contain errors. Data can be misunderstood and misinterpreted. It's therefore important to understand what data is being used as a basis for decision-making.
  2. Big data gives insurers a better view of your risk profile, which can sometimes be a disadvantage. For instance, properties in flood-prone areas may have additional difficulties in getting insurance coverage.
  3. The more your financial service providers know about you, the more they can target offers for financial products to your needs. This could result in you paying for services you “didn't know you needed”. Keep a clear view of what you need to run your business, and think carefully if specially targeted services are offered.
  4. Another risk of having highly tailored financial products and services is that they may contain many different features. This makes it more difficult to compare products and decide which one is best suited to your needs.

Overall benefits

The report notes that the accuracy of data used in big data analysis is of the utmost importance and that the introduction of the General Data Protection Regulation (GDPR) in May will help mitigate risks in this field. Some of the respondents to the consultation on which the report was based also highlighted that the growing use of big data could increase the breadth of the consequences of cyber risks attacks – however the report notes that European legislation has been enacted to seek to prevent such attacks.

Overall, the report concludes that big data brings more benefits than risks – including the enabling of financial institutions to develop products better tailored to the needs of their target market and clients. The reported states: “Other benefits arising from Big Data highlighted by respondents included enhancing the efficiency of the internal procedures inside the organisations, improving the fight against fraud, or enabling better customer-client interactions.”

This item appears in the following sections:
Fraud Prevention
Minimizing Fraud Procedures
Best Practices & Benchmarking in Operations
Control & Compliance in Operations
Risk Management
ERM - Enterprise Risk Management

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