Lessons of Facebook's Overreach

michael-shashoua-waters

Financial industry firms should recognize the value of data they collect and analyze, and tread more carefully as a result

Facebook's controversial psychology experiment, in which the company tested whether skewing its users' news feeds toward positive or negative stories would affect the nature of posts they do, is actually not that much different from financial industry data analysis.

The purpose of data analysis is generally to determine whether to react positively or negatively based on the securities data that firms collect. Although, as Toronto-based data scientist Hashmat Rohian of Aviva Canada, says, financial services firms would attract legal and regulatory scrutiny if they conducted a Facebook-like experiment without clients' consent, data collection by itself is a regular part of operations.

Nonetheless, do firms need to be concerned about protecting privacy and being transparent with how they use data, even data that may be public, such as securities pricings? Inside Reference Data covers many efforts to get comprehensive views of customers and securities, and that's a general goal that Rohian describes as well. Broker-dealers and other industry participants clamor for standards that are consistent, yet open, as found in the results of a study recently reported here.

But is there a potential for overreach in these efforts? If more data is collected, not to mention linked, connected and cross-referenced, then the resulting analysis and insights also are increased stores of data to protect. Breaches of data security certainly aren't unheard of. It may not necessarily be a conscious overreach, as Facebook's disregard for users was.

In developing or collecting ever-more-complex types of data that can contribute to stronger analysis, whether for risk management or in support of trading desks, firms are generating a valuable resource and should appreciate its potential.

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