• Facebook was involved in a data scandal with Cambridge Analytica that allegedly influenced the results of the 2016 US elections
• In the age of artificial intelligence and financial technology, banks and other financial services institutions need access to private data to grow and manage their services and capabilities
• Regulatory guidelines on data acquisition and management are necessary to maintain stability, transparency, and trust to the entire financial industry.

Facebook along with London-based consultancy firm Cambridge Analytica is at the centre of a huge data scandal. The firm allegedly harvested over 87 million Facebook profiles, creating psychographic profiles to influence the results of the 2016 US election, which was won by President Donald Trump.

The issue was first brought to light when Cambridge Analytica’s co-founder and whistle blower Christopher Wylie gave a statement to The New York Times and the London Observer mid-March about how the firm used millions of personal information from Facebook to target voter decisions, which shortly thereafter launched an investigation by the US Federal Trade Commission (FTC).

"We exploited Facebook to harvest millions of people's profiles and built models to exploit what we knew about them and target their inner demons. That was the basis the entire company was built on," said Wylie.

Psychographic micro targeting

In its onset the problem hatched from Facebook’s launch of Open Graph to third party apps, which allowed developers to request access to personal data of both users and their friends. This allowed Cambridge Analytica to harvest millions of data by asking 300,000 users to answer a psychological profile test in 2013 through the “this is your digital profile” app. The 300,000 users share both their personal and friends’ data due to Facebook’s Open Graph.

“We are thrilled that our revolutionary approach to data-driven communication has played such an integral part in President-elect Trump's extraordinary win,” said James Nix, chief executive officer, Cambridge Analytica. Data mining of this degree paved the way for strategic manipulation of user decision through selection of posts that are allegedly pro-Trump, and thus planting psychological cues to sway voter decisions through a selection of ads that appear.

Artificial intelligence and the financial industry

The rise of artificial intelligence (AI) and financial technology (fintech) not only meant adoption of technologies, but also data-driven and community-targeted marketing. Market data, which include user behavior, personality, spending habits, and basic information such as age, area of residence, are critical for banks and fintechs to create an effective product and strategy to market said products. Digital transformation is also increasingly becoming a necessity for financial institutions everywhere in the world to maintain technological standards, and keep up with competitions such as fintechs.

The financial services industry is reliant on accurate and large amounts of customer data, and a public fear or mistrust of their data being mishandled, as Facebook has allegedly done, will make it harder for banks and fintechs to get the information that they need. AI, also called machine learning, is also highly dependent on large amounts of research data in order to continuously improve its services and capabilities. Public mistrust on fintech and AI can also setback the entire financial industry by making adoption of new policies harder. In fact, in the same study only 63% of respondents said that they trust contactless payments, 59% for mobile payments, and only 38% said that they trust robo-advisers.

Regulation and bank stability

The  Monetary Authority of Singapore (MAS) has proposed certain guidelines on proper and ethical use of AI analytics for financial institutions,while government bodies are now enacting laws to regulate the use of AI and keep users safe. Meanwhile, in the European Union, the General Data Protection Regulation law will make it extremely hard for institutions to obtain essential data for analytics. This is a necessary step to foster technological growth and maintain financial stability in the future.

During a congressional hearing in relation to the Cambridge Analytica data scandal, Mark Zuckerberg, CEO of Facebook, apologised to US lawmakers and vowed to strengthen their efforts in protecting the private information of their users. The hearing also opened up more talks on possible regulatory actions in data management.

Still, Facebook’s recent data scandal may have posed a threat to the digital transformation, and technological advancement of financial institutions by making user’s weary of sharing their data. However, it also opened up key issues in data management and regulation that should be addressed to maintain financial stability and strengthen trust and reliability among the customers. This is the silver lining that financial institutions must value in developing their products and services to avoid repeating the mistakes of Facebook in handling user data.

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Keywords:Regulation, Data Privacy, Data Management