Pace of emerging fintech risks leaving investor unprotected

A report issued by IOSCO warns that global regulators' struggle to keep abreast of digital disruption in financial services puts investor protection at risk, as the pace of digital disruption within the sector is too quick and too complex for watchdogs that impact market efficiency and development as well as investor protection. The report also found the fintech products could potentially be launched without regulatory oversight. 

Global regulators are failing to keep pace with the speed of change from FinTech innovators, according to the International Organisation of Securities Commissions (IOSCO).

The pace of ‘digital disruption’ is too quick and complex for domestic watchdogs meaning that market stability could be threatened because regulators are struggling to keep up with digital advances, the IOSCO research concludes.

The securities markets risks outlook, released this month, found that Fintech products could potentially enter the market without regulatory oversight.

It said the increasing complexity of digital disruptors and the pace of advancement could impact investor protection and market efficiency and development.

It said: “Given the penetration of technology into our everyday lives and into how financial markets operate, understanding technological innovation and digital disruption is a critical step, going forward, in understanding the changing risk landscape for securities markets.”

Several risks with digital disruption were outlined, including “investor misunderstanding of the risk designs and limitations of innovative investment tools…”

The Financial Conduct Authority (FCA) launched its Innovation Hub in October 2014 to deal with digital disruption, aiming to provide an “avenue for discussion” between these firms and regulators.

The FCA declined to comment on its ability to cope with the speed of change.

Last year, Christopher Woolard, director of strategy and competition at the FCA acknowledged that: “financial regulations can be complex, and deeply traditional in its approach.”