Security concerns over rise of fintech

Regulators say they must be vigilant on risk to investors

Security concerns over rise of fintech
Steve Randall

It’s too soon to tell if the rapid rise of the fintech industry is good news or bad for investors.

That’s the view of almost half of respondents to a survey by the North American Securities Administrators Association (NASAA) with 34% saying it’s a positive development for investors, and 1 in 5 saying it’s potentially negative.

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The poll’s results underscore the need for regulators to remain vigilant as the sector continues to balloon.

Although respondents acknowledge the advantages to investors of lower costs and greater access to investments, they are also mindful of investor protection and the potential for exposure to risk or fraud that fintech presents.

“The survey results show that our members are focused on the potential for fraud when it comes to new technologies and products, but the results also reflect recognition that these innovations may benefit investors, which makes appropriate regulation and investor education critical,” said Joseph P. Borg, NASAA President and Alabama Securities Commission Director.

Millennials at greatest risk from fintech
Regulators are particularly concerned about young investors, who they believe are most likely to use fintech solutions for their investments.

Millennials are most at risk (41%) while Baby Boomers are also identified as facing potential fintech fraud (33%).

Survey respondents also felt that fraudsters know more about the risks of fintech (56% said that) with investors least knowledgeable (94% thought so). Three quarters felt fintech fraud was becoming harder to prevent.

Cryptocurrencies most risky
The regulators said that across all fintech products there was a high (28% of respondents) or moderate (72%) risk of fraud.

The fear rises to 94% of respondents in the case of cryptocurrencies and ICOs. Robo-advisors is the least at risk of fraud (3%) the survey found.

“Our members are learning about new technologies and uncovering potential threats every day, but to keep pace with innovation we can’t do it alone. The industry and its investors should carefully approach any new investment product or technologies and collaborate with regulators to identify and end new threats that may arise,” Borg said.