Navigating Consumer Duty: The Hidden Cost of Friction
By Shiyu Chen, behavioural scientist and founder at BehaviourAI Lab
Consumer Duty has reshaped the way financial services firms need to think about customer journey. The FCA’s shift from tick-box compliance to outcome-based evidence doesn’t come with sirens or warning, but it does change the ground we’re standing on.
What used to be a design preference is now part of a firm’s regulator responsibility. And this shift invites a different kind of conversation: not about what we’ve declared to customers, but about what they actually encounter.
It’s time to step back, understanding how user journey shapes outcomes, and to diagnose, redesign, and measure those behavioural dynamics through a behavioural science approach.
Sludge: The Silent Enemy in Consumer Duty
Behavioural scientists often talk about nudges – subtle design choices that help people make better decisions. But there is a darker twin: sludge. Where a nudge supports good outcomes, sludge creates friction that slows, confuses, or traps consumers, often preventing them from acting in their own best interests. Sometimes it’s deliberate. More often, it’s accidental by product of growth driven design.
Under Consumer Duty, however, sludge is no longer a UX flaw. It is a regulatory risk. In other words, user journey is no longer a design preference; it is a regulatory obligation.
From Theory to Practice: Where Sludge Hides
Across the four Consumer Duty outcomes, sludge shows up in predictable and measurable ways. Here are some of the most common patterns observed when conducting behavioural diagnostics:
In Consumer Understanding, sludge emerges when complex layouts bury key risks “below the fold”, leading users to skim past critical information. This becomes visible when users spend only a few seconds on a lengthy Terms and Conditions page before clicking “Accept”.
In Consumer Support, sludge takes the form of exit friction, where cancelling a product requires far more effort than signing up. For example, a two step onboarding journey contrasted with a ten step cancellation process.
In Price & Value, sludge appears through fee shrouding, where total costs are only revealed at the final payment stage, often triggering sharp drop offs when users encounter unexpected charges.
In Products & Services, sludge shows up as dark nudges, such as urgency cues (“Only 2 left!”) that push consumers toward unsuitable choices, reflected in high cooling off cancellations shortly after purchase.
These patterns aren’t simply UX quirks. They are behavioural signals that parts of the journey may be misaligned with Consumer Duty expectations.
Evidence in Practice: Decoding the Metrics
Understanding where harm may emerge in a user journey often begins with simple behavioural signals. Metrics such as reading time vs. scroll depth reveal whether customers meaningfully engage with key information. Similarly, basket abandonment at payment indicates moments where unexpected fees or late‑stage cost disclosures prompt users to drop off.
Other indicators point to friction that distorts decision‑making. The parity ratio can reveal disproportionate effort that may hinder Consumer Support. And the reversal rate often signals that urgency cues or other dark patterns may have pushed users toward unsuitable products.
These metrics don’t provide the full diagnostic picture, but they offer early behavioural clues about where journeys may be creating unintended barriers or risks.
The Behavioural Toolkit: Hook-Fix-Proof
The BehaviourAI Lab offers a structured approach to help financial services firms identify and mitigate sludge before it becomes a regulatory issue. The Hook-Fix-Proof framework integrates behavioural diagnostic, behavioural design, and behavioural validation to improve user journeys.
Hook focuses on identifying the behavioural dynamics that create sludge – the friction points, hidden barriers and decision pathways that shape how users actually behave. This stage surfaces the subtle patterns that traditional UX reviews often miss.
Fix applies choice architecture principles to redesign those pathways, removing unnecessary friction and reducing sludge so that decisions become clearer, smoother, and more aligned with users’ goals. The emphasis is on enabling better choices, not nudging toward predetermined ones.
Proof brings empirical validation, using behavioural measurements to demonstrate whether the redesigned journey truly improves outcomes. This stage provides the outcome based evidence that Consumer Duty now expects – showing measurable behavioural change, not just good intentions.
Is your product journey hiding a Sludge Red Flag?
At BehaviourAI Lab, we help financial services firms diagnose, redesign, and validate their journeys using behavioural science and metrics that evidence Consumer Duty outcomes.
Don’t wait for the regulator to spot the friction. Book a Sludge Diagnostic and get ahead of the risk.
From innovation challenge to Scottish ambition: How Finspector is building the future of financial promotions compliance
By Phil Clements, CFA, CAIA, FDP, CEO at Finspector
When we incorporated Finspector in March 2025, we had a straightforward thesis: the way regulated firms manage financial promotions compliance is broken, and AI can help to fix it. What we didn’t fully anticipate was how quickly the right ecosystem support could turn that thesis into a live, revenue-generating platform, or how Scotland would become central to our story.
Twelve months on, Finspector has gone from concept to commercial traction, with signed proof-of-concept clients, paying customers, and recognition as FinTech of the Year at the Scottish FinTech Awards 2025. A significant part of that acceleration came through our participation in the Financial Regulation Innovation Lab, and it’s worth explaining why.
The problem we set out to solve
The financial services industry has a marketing compliance bottleneck that most people outside the sector don’t fully appreciate.
Every time a regulated firm publishes a social media post, launches a marketing campaign, updates a website, or prints a brochure, that content must comply with a dense web of financial promotion rules. In the UK, the Financial Conduct Authority (FCA) oversees this regime, and it’s getting stricter. FCA interventions on financial promotions nearly doubled from approximately 10,000 in 2023 to nearly 20,000 in 2024.[1] Additionally, the introduction of Consumer Duty[2] has raised the bar further, requiring firms to demonstrate that every customer communication is clear, fair, and not misleading.
Yet the tools most firms use to manage this process haven’t kept pace. Compliance teams still rely on spreadsheets, manual screenshot archiving, and subjective interpretations of rules around things like the “prominence” of risk warnings. Over 75% of content typically fails its first compliance review, and sign-off cycles stretch from three days to a full week.[3] For marketing teams producing hundreds of assets per month across LinkedIn, Instagram, TikTok, YouTube, and beyond, this creates an impossible bottleneck.
Finspector was built to break that bottleneck.
What Finspector actually does
At its core, Finspector is an AI-powered platform that automates the review, monitoring, and governance of financial promotions across digital channels including text, images, video and social media.
The key innovation is what we call the rule-to-check engine. Rather than relying on generic keyword scanning or static templates, our platform converts each firm’s unique compliance policies and regulatory obligations into machine-readable, deployable AI checks. For example, a firm might hand us their internal financial promotions checklist, a document that runs to dozens of pages of detailed guidance, and we transform it into a structured set of automated checks that our AI agent can execute against any piece of content in minutes.
This is powered by a combination of large language models, computer vision, and a regulatory knowledge graph developed in partnership with academic partners at the Cambridge Judge Business School spin-out, RegGenome.[4]
The platform operates through four key features.
- Inspect reviews content before publication, flagging potential compliance risks.
- Monitor continuously watches published content across social media channels to catch issues post-publication.
- Approve gives compliance teams a structured workflow for sign-off.
- Audit maintains a complete, time-stamped trail of everything that’s been reviewed, exactly the kind of defensible evidence regulators expect under Consumer Duty.
The practical result is that compliance review times drop from hours to minutes, marketing teams can increase their output without compromising on compliance, and firms gain a scalable oversight framework across every digital channel.
Why the Financial Regulation Innovation Lab mattered
The Financial Regulation Innovation Lab[5], known as FRIL, is a Glasgow-based centre of excellence in financial regulation innovation. It’s a partnership between the University of Strathclyde, the University of Glasgow, and FinTech Scotland, and it has become one of the UK’s most credible programmes for advancing regulatory technology.
Finspector was selected as one of four grant winners under FRIL’s Future of Wealth Innovation Call in 2026, receiving £50,000 to further develop our solution. But to describe FRIL purely in terms of funding would miss the point entirely.
The programme accelerated our development by an estimated three to four months. The grant enabled us to dedicate engineering capacity to core platform features, including the social media monitoring module, the rule-to-check extraction framework, audit reporting, and early ISO 27001 alignment work, that would otherwise have been delayed. In practical terms, it funded approximately 1.5 to 2 additional FTE-equivalents of engineering and product development time across the programme period.
More importantly, FRIL opened doors. The programme’s industry partner network provided warm introductions to senior compliance, risk, and innovation stakeholders at major UK financial institutions, conversations that would typically take three to six months to initiate through cold outreach. Feedback from those sessions was consistently encouraging. Partners described Finspector as a “strong, credible proposition with a clear problem being addressed,” operating in “a good space” with a “reasonable market opportunity.” That kind of validation from tier-one institutions carries real weight when you’re a young company trying to earn trust in a, traditionally, risk-averse sector.
The structured pilot process was equally valuable – we onboarded live pilot clients during the programme, converting compliance policies into automated AI checks and deploying them against real content. One early engagement involved converting two detailed policy documents into 82 separate AI checks, covering jurisdictions spanning the UK, Europe, Australia, the US, Asia, and the Middle East. The feedback loops from these pilots (we tracked 23 distinct feature requests from early users) directly shaped our product development and reduced false positive rates.
Scotland as a strategic base
One of the less obvious outcomes of the FRIL programme is that it crystallised our commitment to Scotland as a long-term strategic base.
This wasn’t a foregone conclusion, Finspector is a UK-wide company, and our team and clients span multiple regions. But the depth of the Scottish fintech ecosystem, the quality of the academic institutions, and the genuine support from organisations like FinTech Scotland and Scottish Enterprise have made a compelling case.
We’ve already appointed a dedicated Account Manager based in Scotland, and we’re planning to bring on interns over the summer to support product development and operations. But the ambition goes well beyond that. Over the next three to five years, Finspector looks to potentially establish a permanent Scottish operational hub, and we’re targeting a Scotland-based team of around 20 by 2029.
Scotland already has a strong reputation in financial services and a growing fintech cluster. Our goal is to contribute to that by positioning the country as a centre for AI-driven regulatory technology innovation, a niche where Scotland can genuinely lead.
What comes next
Since 1 January 2026, Finspector is in active commercialisation mode with an aim of targeting 25 to 40 regulated firm clients over the next 12 to 24 months.
On the product side, Q2 2026 will see the launch of website monitoring and domain-wide scanning, enhanced security controls for ISO certification, and continued platform improvements driven by client feedback. Later this year, we’ll expand social monitoring automation, introduce version control and historic comparison features, and target our first enterprise-scale deployment. International rule libraries covering the EU and UAE are planned to follow, along with API integrations with compliance workflow systems.
We also participate in the FCA’s AI Supercharged Lab and AI Spotlight programmes, giving us a dual regulatory endorsement that few early-stage RegTech firms can claim.
A reflection
The FRIL programme has been transformational for Finspector. We entered with a strong technical foundation, we’re leaving with live pilots, paying customers, and a clear path to scale.
But perhaps the most lasting impact is strategic, FRIL didn’t just help us build a product faster; it helped us see where we should be building it. Scotland’s combination of regulatory expertise, academic depth, financial services heritage, and genuine ecosystem support makes it the right place for a company like ours to grow.
We’re just getting started.
Phil Clements is CEO of Finspector, an AI-powered RegTech platform for financial promotions compliance. Learn more at finspector.ai.
[1] https://www.fca.org.uk/news/press-releases/fca-steps-action-against-misleading-financial-adverts
[2] https://www.fca.org.uk/firms/consumer-duty
[3] https://intelligencebank.com/insights/what-are-the-top-marketing-compliance-challenges/
[5] https://www.fintechscotland.com/research-innovation/financial-regulation/
Towards a Fairer Financial System: Insights from Gillian Docherty and Clare Reid
How do we design a tech‑driven, fairer financial future for everyone?
In this podcast, we speak with Gillian Docherty, Chief Commercial Officer at the University of Strathclyde and one of the UK’s leading minds in technology and computer science, and a collaborator on the Financial Regulation Innovation Lab’s AGBR Innovation Call; and Clare Reid, Strategic Innovation Director at FinTech Scotland.
We explore how to create a financial services sector that is future‑ready, responsible and built on collaboration and that ultimately serves everyday people, including those who are most vulnerable. With technology, AI and quantum technologies advancing at a rapid pace, we ask: what will it take to deliver real transformation for people, not just industries?
Throughout the episode, we paint a picture of the future world we will all be living and working in, bringing valuable insights for industry, policymakers and academia.
Finance and Health Lab National Conference
On 19 March, FinTech Scotland hosted the Finance and Health Lab (FHL) National Conference at the Edinburgh Futures Institute, marking the completion of Phase 1 of this programme. The event brought together leaders from financial services, fintech, academia, government, healthcare, and the third sector to share learning from academia, industry, and from the Lab’s first Innovation Stimulation Open Call and to explore the future of financial wellbeing in an ageing society.
The Finance and Health Lab was established to address a growing reality: as populations age, financial health and physical health become increasingly interconnected. Changes in income, housing, care needs, cognitive capacity, and social circumstances create complex challenges that sit across multiple systems. No single sector can address these alone. FHL was designed to catalyse collaboration, evidence-led innovation, and practical experimentation to improve outcomes for people in later life.
Setting the Context
The conference opened with reflections on the programme’s purpose and progress to date. Discussions on the implications of demographic change highlighted both the scale of the challenge and the opportunity for innovation. An ageing society is not simply a policy issue. It reshapes how financial services must operate, how products are designed, and how support is delivered across the life course.
A research showcase featuring leading academics explored the evolving relationship between health and wealth in later life. The evidence underscores that financial insecurity and poor health often reinforce one another, yet services are rarely designed with this interplay in mind. Bringing rigorous research into direct dialogue with industry practitioners is a core objective of the Lab.
Designing Future-Ready Services
An industry panel examined what it will take to build financial services that remain effective as customers age. Trust, accessibility, and long-term resilience emerged as central themes.
Participants highlighted the need to move beyond reactive support models toward proactive approaches that anticipate vulnerability and support people through major life transitions.
Importantly, the discussion recognised that innovation in this space must balance commercial sustainability with public benefit. Aligning these objectives is challenging but essential if solutions are to scale.
Showcasing Innovation
The afternoon sessions highlighted solutions developed through the Innovation Stimulation Open Call. Participating startups delivered rapid demonstrations of tools and platforms addressing issues such as financial vulnerability, planning for later life, support for carers, and accessible digital services. Follow-up discussions allowed founders to engage directly with industry stakeholders and policymakers.
A session led by Smart Data Foundry demonstrated how responsibly governed data can generate new insights into the links between financial behaviour and broader social determinants of wellbeing. This work illustrates the potential for data to support more targeted interventions while maintaining public trust.
Collaboration in Practice
Throughout the day, one message was clear: progress in this space depends on sustained collaboration. The Lab has created a structured environment for organisations that do not typically work together to share expertise, test ideas, and identify barriers to implementation.
Beyond the formal sessions, the conference enabled valuable informal engagement among senior leaders across sectors. These conversations are critical for building the partnerships required to translate early innovation into real-world impact.
Key Insights from Phase 1
The closing discussion reflected on what the programme has demonstrated so far:
- Financial health in later life is a systemic issue requiring cross-sector solutions
- Evidence, lived experience, and innovation must be integrated from the outset
- Trust, accessibility, and dignity are foundational design principles
- Data can unlock new approaches when used responsibly
- There is strong appetite across industry and public services to continue this work
Phase 1 has shown that structured collaboration can move beyond dialogue to tangible experimentation and learning.
Looking Forward
The National Conference marked an important milestone, but not an endpoint. The insights, partnerships, and prototypes developed through the Finance and Health Lab provide a foundation for future phases of activity.
FinTech Scotland remains committed to working with partners to advance solutions that support healthier, more financially secure lives as people age. The challenges are significant, but so is the opportunity to redesign systems around real human needs.
Phase 1 has demonstrated what is possible when diverse sectors come together with a shared purpose. The next stage will focus on deepening this work and translating innovation into scalable impact.
Risk Taxonomy as Governance Infrastructure: Adaptation, Traceability and Industry-led Use Cases for Fintech Innovation
Risk taxonomies in financial services are often presented as stable classification models: a hierarchy of principal risks that supports aggregation, governance oversight, and regulatory reporting. This paper argues that such a view is incomplete. In practice, a risk taxonomy is a governance infrastructure shared across stakeholder communities, including firms, supervisors, regulators, and the risk profession. Its value depends on traceability.
By traceability, we mean the practical ability to track and explain how risk categories, data, judgments, mapping rules, and mitigations are defined, applied, changed, and communicated within and beyond an organisation. Traceability matters because the quality of risk management is rarely observable in real time. Weaknesses may only become visible much later as business performance outcomes, operational incidents, or supervisory concerns, at which point feedback is costly, and remediation may be too late for firms and the wider system.
For CFO and related decision-makers, the central issue is not whether a taxonomy contains the right high-level categories (which tend to be stable across major firms), but whether the organisation can operate the taxonomy reliably: govern changes, manage mappings and aggregation, and produce assurance-grade evidence that connects categories to decisions and outcomes
Conceptually, we position risk taxonomy as a boundary object: a shared artefact that different communities can use for their own purposes while recognising it as “the same thing.” A taxonomy must be robust enough to maintain comparability across firms and reporting regimes, yet flexible enough to adapt to local realities: portfolio differences, organisational structure, data maturity, and changes in technology and competition. This predictable tension does not imply failure; it highlights that the taxonomy is doing coordination work across communities. The design challenge is to make this coordination auditable.
Empirically, we review risk management disclosures in the annual reports of three large UK banks over 2022–2024. We code for risk categories, implied hierarchies, grouping logic, and signals of year-on-year change. We observe strong stability at the top level (credit, market, liquidity/capital, operational, conduct, financial crime, model risk and climate-related risk as recurring themes), with change occurring mainly through shifting emphasis, greater granularity, and increased attention to non-financial and resilience-related risks. The implication is that innovation opportunities are less about reinventing categories and more about strengthening the socio-technical system around the taxonomy: data lineage, mapping logic, change control, governance workflows, assurance, and explainability, including for data-sparse or emerging risks where judgement and scenario processes play a larger role.
The paper’s contribution is a proposal for industry-led use cases, as a portfolio of well-specified problem statements that large financial services firms can publish to invite targeted innovation from fintechs. Each use case is designed to be procurement-ready and assurance-aware. The portfolio is organised by decision ownership, minimum data inputs, workflow controls (audit trail, segregation of duties, approvals), outputs (MI, reporting support, evidence packs), and success measures (time and cost saved, reduction in reconciliation burden, fewer classification disputes, improved supervisory confidence).
We conclude with implications for the UK supervisor. Rather than advocating new rules, we propose that supervisory engagement can be strengthened by encouraging firms to set expectations for traceability-by-design around taxonomies. By this, we mean controlled change, transparent mapping between internal granularity and external reporting, auditable lineage from source data to risk decisions, and explicit governance of data-sparse risks., including scenarios, assumptions logs, and review cycles. These steps can reduce reporting friction while improving the credibility of risk disclosures and the resilience of firms and the system.
About FRIL
Agentic AI for Scaling Targeted Support: A Governance Framework for the FCA Advice–Guidance Boundary
The Advice–Guidance Boundary Review (AGBR) introduces targeted support as a new regulated activity intended to address the persistent financial advice gap in the UK. While generative AI technologies offer the potential to scale accessible financial support, doing so within the advice–guidance boundary introduces significant governance challenges. Compliance requires structural control over segmentation logic, boundary monitoring, knowledge governance, vulnerability detection, and audit transparency.
This white paper proposes an agentic AI governance framework that embeds these regulatory functions within the architecture of AI-enabled financial support systems. The framework distributes responsibility across specialised agents responsible for segmentation governance, boundary monitoring, vulnerability detection, knowledge management, and supervisory audit. By embedding compliance functions as interacting agents surrounding a multimodal generative AI interface, the proposed architecture transforms regulatory compliance from a behavioural expectation into a structural property of the system. The framework provides a conceptual foundation for scaling targeted pensions support safely and transparently under the FCA’s AGBR while supporting responsible innovation in AI-enabled financial services.
About FRIL
Assure Continuity with Operational Resilience
How can critical Information and Communication Technology (ICT) providers help bring stability, security, and innovation to financial institutions?
The financial services sector is front and centre when it comes to the demands of regulatory oversight aimed at improving operational resilience. As a strategic ICT partner to many financial organisations, Sword see that these regulations bring two clear headline responsibilities – mandatory security requirements and minimum security standards. This is not whole story, as understanding the innovation opportunities afforded by tackling resilience requirements is key to building competitive advantage. We asked Rob Mossop, COO at Sword, to talk us through how financial institutions can navigate compliance and drive excellence across critical financial and national infrastructure.
Financial institution regulations for operational resilience
Security regulations are tightening for financial institutions across the UK and Europe, including EU regulation DORA, the UK CSR Bill, and NIS2 (learn more in the glossary below). These regulations are designed to guide organisations as they look beyond their own infrastructure and operations, encouraging them to think of the broader impact on how disruption affects customers, not just internal systems. This means it’s important for organisations to reengineer ways of working and reporting methods for operational resilience, to develop a deep understanding of dependencies on critical systems and their tolerance for disruption.
Scrutiny on critical ICT providers
Critical third-party ICT providers play a key role in improving resilience, often responsible for the IT and digital infrastructure on which organisations’ critical systems run. Your strategic technology providers should help you to interpret and implement resilience requirements, and under tightening regulations like the UK CSR Bill, will become subject to regulations directly. Strong partnerships will help protect your organisation against threats and demonstrate a robust supply chain to regulatory bodies.
Resilience as the foundation for innovation
Many organisations are moving beyond baseline regulatory requirements, driving increased growth and customer engagement through the smart use of the data and technology operational resilience requires.
The data needed to demonstrate compliance can become central to understanding your operations, customer behaviour and product performance. Innovative organisations are leveraging their improved operational resilience with third-party assurances, to adopt new technologies that boost effectiveness and performance. This combination of insights from critical system behaviour and deeper knowledge of (and trust in) third-party providers, allows organisations to understand what customers need from their products, and iterate toward that need more quickly, with lower risk.
Simplified, trusted, IT partnerships
Most organisations have a network of IT and digital providers, each delivering different services. Establishing a clear plan for how you would operate through disruption together, and the role each plays in response, is critical. Choosing capable ICT providers who have strong processes in place to assure resilient operations that meet compliance requirements is increasingly important.
Simplifying your partnerships around a small set of strategic partners with whom you engage directly in support of your operations resilience plans will help you to meet your regulatory needs and best prepare for disruption. Quickly identifying where disruption could occur in your supply chain can show fragility points and allow you to strengthen resilience, particularly when it comes to disruption response, where your IT partners need to understand their role in ensuring tolerance thresholds are not breached.
You should expect your technology providers to bring a wider view of processes and systems, moving beyond purely technology-based recommendations to encompass broader organisational needs, such as target operating models and service operating models.
Disruption to critical systems is rarely a “single provider” issue. Leaning on the operating models of your IT partners, and integrating them into your own, will help to ensure that multi-partner responses are easier to manage and monitor during an event.
M&A activity under the microscope
Financial institutions with intensive M&A programmes may find themselves under increasing scrutiny from all sides. Integration of systems and processes, or a need identified through due diligence and pre- or post-merger analysis, may add to compliance requirements. It’s important to keep a centralised view and protect all organisations involved to avoid inheriting bad behaviours, processes or suppliers that bring vulnerabilities. If you anticipate divesting, it’s equally important to prove that you’re selling a resilient, disruption-tolerant organisation that is ready to meet and report on compliance requirements.
Steps to take today
Current regulations do not provide detailed blueprints or formats for how organisations should track compliance. It is up to you, and your technology partners, to define these processes.
Take these regulations as a trigger to prepare against disruption and lay the ground for service progression – engage with your critical suppliers, map your third party dependencies, and proactively orchestrate threat lead penetration testing exercises. Begin thinking now about how the data and technology you invest in can move your understanding of business operations and customer behaviours onwards, to spot innovation opportunities early.
Engage your suppliers in your planning, and ensure that your operating model and technology decisions are supportive of those plans. We all need to understand our role in the wider ecosystem of protecting our financial infrastructure to deliver critical customer services that are more tolerant of, and more responsive during, disruption.
Terminology Glossary
DORA – Digital Operational Resilience Act – EU regulation in place from 17 Jan 2025 to strengthen digital resilience of financial entities.
UK CSR Bill – UK Cyber Security and Resilience Bill was first read to parliament 12th Nov 2025, making amendments to 2018 legislation that aim to make essential and digital services more secure.
NIS2 – Network and Information Security 2 Directive is an EU cybersecurity law.
What next?
If you’re interested in more information on how to build operational resilience, you can read more about Sword’s services here – https://www.sword-group.com/uk-platform/
To get in touch with someone at Sword to find out how we can help, please email uk.info@sword-group.com
About Sword
Sword is a leading business technology company headquartered in Aberdeen, employing 650+ people across the UK. Our mission is to solve complex challenges, build operational resilience, and create efficiencies for organisations in the Finance, Energy, and Public Sectors.
Building Pre-Commercial Challenge Spaces: Innovation Calls, Regulatory Adaptation and Productivity Pathways in Financial Services
This paper examines how challenge-led innovation calls can help shape and guide the emergence of a business and policy ecosystem around current regulatory problems in financial services. Drawing on field materials from the first three Financial Regulation Innovation Lab (FRIL) innovation calls held in 2024, it argues that relatively small publicly supported challenge programmes can identify promising firms. As importantly, they can create structured pre-commercial spaces in which financial services companies, fintechs, and intermediaries can articulate common problems, test emerging solutions, and develop pathways towards pilots and adoption.
The paper is situated in a wider policy context in which productivity, innovation and sector growth have again become central concerns in UK policy. The UK’s Modern Industrial Strategy identifies Financial Services and Digital and Technologies among priority sectors for long-term growth, while recent policy developments around procurement innovation show growing interest in reducing barriers between innovative smaller firms and large institutional end users (UK Government, 2025a). The Productivity Institute, meanwhile, has argued for a broader understanding of productivity centred not only on output-input ratios but also on coordination, knowledge use, capability development and diffusion (Coyle, 2021; Jones, 2023; UK Government, 2025b; van Ark, de Vries and Pilat, 2024).
The paper treats FRIL as an intervention in productivity-relevant processes. Across the first three calls, the immediate challenges for financial-services firms were compliance-related: AI-enabled compliance simplification, ESG and sustainability compliance, and Consumer Duty compliance. Yet the practical work extended beyond compliance into data, reporting, governance, customer processes, and operational change. The first call was structured around sponsor-specific use cases, provided strong lead-user access, and tended towards concentrated matching within particular firms. Later calls, especially the ESG-focused second call, moved towards co-developed challenge statements and multi-sponsor backing, creating stronger conditions for shared learning, diffusion, and wider ecosystem formation.
It is too early to claim direct measured productivity gains at the programme level. However, the evidence from the three calls is sufficient to identify several plausible productivity pathways: clearer problem articulation, reduced search and matching frictions, faster pre-commercial validation, reduced manual effort in compliance-related processes, and stronger conditions for diffusion and reuse. The central policy lesson is that innovation calls work best when they are treated both as competitions for technical ideas, and as mechanisms for shaping and guiding pre-commercial ecosystems around current business and policy problems.
About FRIL
AI Governance after MiFID II: Beyond (Mere) Technological Neutrality?
This article examines the evolving intersections between artificial intelligence (AI) and EU financial regulation, focusing on the Markets in Financial Instruments Directive II (MiFID II). Grounded in the principle of technological neutrality, MiFID II seeks to enhance investor protection, safeguard market integrity, and ensure that innovation develops within competitive and well-regulated markets across the Union. The article argues, however, that while this neutrality renders the framework functionally enabling, it also leaves it normatively silent in the face of the distinctive and evolving risks introduced by financial AI. As AI applications become increasingly heterogeneous—both across the financial functions in which they are deployed and in their underlying lifecycles and value chains—MiFID II’s activity-based logic increasingly struggles to accommodate their diverse and evolving risk profiles. Reflecting the EU’s broader shift toward risk-based AI governance, the article outlines an initial taxonomy of financial AI applications designed to guide the proportionate alignment of regulatory obligations with AI-related risks, thereby supporting the continued adaptability, coherence, and future-proofing of EU financial services law.
About FRIL
Research in Action – How Financial Regulation Innovation Lab (FRIL) Is Turning Insight into Impact for Industry and Consumers
FRIL is turning collaborative research into real-world solutions for the future of financial services – and, in turn, for all of us.
“There’s hardly an organisation you can talk to that isn’t interested in artificial intelligence and cyber security – the opportunities created and the challenges they might face,” explains Professor Eleanor Shaw OBE, Associate Principal External Engagement and Partnerships at the University of Strathclyde.
“As researchers, it’s really important that we use our expertise to explore those challenges with our external partners and find solutions. That’s how we drive impact.”
And the impact Eleanor describes isn’t just for industry; it’s for all of us, in our everyday financial lives.
“Imagine a world where, regardless of your postcode, you can access good-value, high-quality financial products: mortgages, insurance, advice and guidance. That’s the world we’re working towards at FRIL,” adds Eleanor.
Speak to almost anyone in financial services right now – just like many sectors – and you’ll hear the same underlying tension: the future is arriving faster than most organisations can comfortably absorb.
Technology and consumers. Opportunity and risk. Acceleration and anxiety. The list of modern paradoxes keeps growing. It’s enough to raise the pulse slightly.
That’s why addressing those challenges is at the core of the research undertaken by FRIL. This research is not theory alone. It is applied, fast-moving, tested, and shaped alongside industry and regulators – with real-world consequences in mind. Consequences that mean faster solutions for consumers, greater innovation capacity for banks, and new skills development programmes designed for the next generation of financial services.
“There’s a magic formula at the heart of FRIL, which is why we see the results we do. Actionable research is one of four key ingredients. The others are our Innovation Calls, Knowledge Exchange and Skills and Education programmes. Together, they drive impact and get solutions out into industry quickly,” explains Clare Reid, Strategic Innovation Director at FinTech Scotland. “Our partnerships with the Universities of Glasgow and Strathclyde are really important in driving research that shapes positive outcomes.”
Preparing for the future now
So, how does this actionable research actually work? Mark Cummins, Professor of Financial Technology and Lead Investigator at the University of Strathclyde, explains:
“At the University of Strathclyde translation of research has always been a key focus. We work in fundamental research and publications are critical – they build credibility, but we also work hard to translate that research into impact.
“At the University of Strathclyde, for example, we use cluster mechanisms to coordinate expertise across different areas. I lead our FinTech cluster, and those clusters are a key way of translating research for real-world impact.
“What FRIL brings is a mechanism for bringing all the stakeholders into one room: financial services, professional services, fintechs, regulators and others. That coordination gives us a reach that can be difficult to replicate in other ways.”
And that connection to industry and regulators is key:
“We draw on our academic knowledge to deliver applied research set by companies and regulators, and connect that directly to skills development and real industry challenges,” adds John Finch, Professor of Marketing at the Adam Smith Business School at the University of Glasgow and another Lead Investigator for FRIL.
FRIL research starts with real, live problems ranging from consumer vulnerability to operational resilience. The research activities bring banks, fintechs, regulators, and technology firms together to turn those challenges into direct, applied research built for a rapidly moving environment and evolving consumer needs. And it is a model that is appealing to action orientated academics.
“One of the key reasons I came back to academia was the chance to work on these white papers with industry,” says Steve Owens, a knowledge exchange fellow at the University of Strathclyde, and an engineer by trade. “We take real use cases and put academic research around them, then get that knowledge back out quickly. The focus is on getting useful insight into industry hands as quickly as possible.”
That research is increasingly boundary-pushing, and spans explainable AI, multi-modal generative AI, earth intelligence using satellite data, and agentic systems, but always tied back to regulatory and market needs.
The FRIL research model blends open and applied innovation. White papers are published openly so the wider sector can benefit.
Meeting needs
For banks, this means the research environment that FRIL offers becomes a home for strategic insights.
“We’re an insight-led team,” explains Nicole Alston, Programmes and Community Engagement Manager from Natwest. “FRIL gives us visibility across disruptive technologies and emerging sectors. We know we can’t build everything internally and that this is a two-way exchange.”
And that two-way exchange is critical, because at the centre of this high-tech research, is a clear purpose to tackle very human needs.
“If we apply technology correctly in financial services, we can drive greater inclusion and economic prosperity,” Eleanor reminds us.
Consumer vulnerability and consumer duty are recurring themes across FRIL research, but all of these areas are deeply nuanced where ‘one-size-fits-all’ solutions won’t cater for the needs of all those in society. John helps explain:
“Vulnerability isn’t always permanent; it can be linked to life stage and personal circumstances. Insights from firms who see this day to day often reshape how and where we focus our research.”
Those insights are increasingly being translated into practical tools, and Advanced AI research is being applied directly to consumer outcomes.
But what does all of that actually mean? Well, just a few of those examples include identifying potential discrimination in financial decision-making, bringing financial advice and guidance to the masses rather than the few, and building voice-led digital interfaces that help people with reading or learning difficulties access support more easily. This is work that matters for everyday people.
And for technology partners, the value lies in bringing together the academic rigour with market urgency.
“We take hypotheses from industry challenges and shape them into structured research with academic partners,” says John Donoghue, Chief Technology Officer at Sopra Steria, a major tech firm with over 50,000 employees worldwide.
Students are embedded too – through live projects, dissertations, and industry-defined challenges, with the aim of building future skills alongside present solutions
“Students and researchers test and explore the challenges through projects and dissertations, then play findings back to us. We feed that directly into our product and strategy thinking,” adds John.
“This matters because we want to stay at the front edge of the industry,” he explains. “Working on challenges alongside – or ahead of – our clients helps us respond proactively and differentiate.”
People and collaboration
Across every voice we speak to, there is one theme that repeats: collaboration is essential – critical, even:
“Actionable research is crucial,” adds Kal Bukovski, Head of Academia and Research at Sopra Steria. “We bring together regulators, firms and technical practitioners so everyone takes something practical away. It’s about answering the what, why and how, not just describing the problem.”
With such a focus on technology, it may be surprising that what really drives FRIL’s research environment is a community of people who place a strong emphasis on meaningful and productive relationships. Mark explains:
“Our research, skills and education activities are all built on relationships. FRIL gives us a unique environment to build those and to translate research into real use.”
Research with purpose
This is research that doesn’t sit still. It moves quickly into white papers, innovation calls, student projects, product strategy, workforce upskilling and regulatory thinking. Kate Blatchford- Hick is Head of Consumer Investments Policy and Market Analysis at the Financial Conduct Authority and explains how the work drives impact for the regulators:
“FRIL’s research is really valuable as part of the market analysis, horizon scanning and insight work that we do. The work on AI and open finance, for example, helps deepen the evidence base around how emerging technologies are shaping consumer decision-making, both now and in the future. That, in turn, strengthens the FCA’s ability to anticipate market behaviours, risks and innovation, and helps us prioritise policy work that responds to both the opportunities and the potential risks.”
And while insights from FRIL are actively informing regulation and policy, they are also shaping a new generation of skills programmes designed for a rapidly changing sector. Earlier this year, FRIL launched the FRIL Skills Academy. The academy is a first-of-its-kind skills and education platform created to address capability gaps and support career development across financial and professional services and the wider fintech community.
Delivered with academic partners at the University of Strathclyde and the University of Glasgow, the Skills Academy responds directly to the accelerating pace of technological change, particularly in areas such as AI, data quality, and regulatory compliance, where talent shortages continue to slow innovation and increase recruitment costs.
FRIL research has highlighted persistent skills gaps across the sector, reinforcing the need for sustained, strategic investment in workforce development to maintain the UK’s global competitiveness.
“This is a new benchmark for how academia and industry partner at pace,” says Clare Reid, Strategic Innovation Director at FinTech Scotland.
And this point leads us to the nub of FRIL research. This research doesn’t just help us understand change, it informs how we shape it. That’s what makes this model so distinctive.
“I believe in this research because it’s about doing good quickly, we’re not just producing journal outputs, but creating real industry impact and addressing real consumer needs, right here and right now,” concludes Mark.
At the centre of FRIL’s research is a common theme – in a world of rapid change, we need to think differently and act boldly. That same mindset runs through the fintech world, where pushing boundaries, breaking ground, and creating new ways forward are part of the DNA.
As Kal puts it: “Fintech is a kind of art: you have to think beyond the limits and create something new that genuinely serves the right purpose.”
And that is FRIL research.
‘Innovation in financial regulation’ might not sound like the catchiest tagline, but it is at the heart of making the world better for all of us – today, tomorrow and in the decades that come.
What next?
Interested in the research generated by FRIL? Then check out our White Papers across a range of subjects.
If you’re interested in the work of FRIL more generally and would like to contact a member of the team email: FRIL@fintechscotland.com.