The “Mass Influx” of Innovation in the Financial Sector Brings New Risks

“From a risk and opportunity perspective, there are many digital-only services available that may have started before COVID, but are now firmly entrenched in the system,” he said. . “Now we have digital banks that don’t have physical branches and the legacy costs of old systems.

Many new partnerships are forming between traditional FI companies such as banks and insurance companies and young digital-first companies such as fintech and insurtech companies. For example, Morenci sees a trend of banks working with fintech companies to offer innovative payment solutions, digital wallets, cryptocurrency solutions and other customer service and security improvements.

The same can be said for insurers partnering with insurtechs, but Gallagher leaders say banks are “definitely one step ahead” when it comes to investing in technology and innovation. he said: [the banks] If they find an interesting fintech solution, they can simply partner with or buy to accelerate their operations quickly. ”

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Morenci is also trending towards specialty financial institutions or non-bank lenders receiving large amounts of private equity funding to provide highly niche solutions that take away some of the profitable fee-based businesses from banks. We have also worked on providing embedded financial solutions, helping non-FI companies to include financial services and products in their digital offerings.

Digital innovation is critical to FI’s current relevance and future success, but with such advancement comes new exposure.

Cyber ​​risk is one of the greatest exposures financial institutions face today, from external threat vectors that infiltrate banks’ security systems and plant ransomware, to unauthorized employees exposing funds and intellectual property. It almost certainly comes in the form of theft, inadvertent disclosure of personal information, and so on. Identifiable Information. FIs are important targets for cybercriminals because of the financial data and transactions they facilitate.

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There are also privacy concerns regarding the use of biometric technology to secure and connect digital financial solutions. More and more of his FIs are using voice and facial recognition scanning for “know your customer” verification. However, Morenci points out: “There are good and bad uses for that technology,” he said, pointing out that the Deep Fake — combining his biometric technology with artificial intelligence to disguise his identity — has become a serious problem. I am emphasizing that

“When you go into this idea of ​​professional financial institutions, non-bank lenders, and embedded finance, there is a risk of error and omission (E&O) claims,” ​​Morency told Insurance Business. “They offer unlicensed or unlicensed services and we sometimes find it very difficult for these companies to navigate the regulatory environment.

“If we offer embedded financing, we may also offer embedded advice, but we don’t actually do it. [intend to be] give advice. It gets especially complicated when dealing with money. I have spoken to clients about their insurance needs and asked questions such as: Do you really know what you’re talking about in your tax advice article? ”

Morenci said keeping up with new technologies and competitor innovations is a major operational and strategic risk facing financial institutions, but must be done with attention to risk management and regulatory compliance. said.