Financial experts from around the world have warned that the lack of knowledge about new technologies, cyber securities, cryptocurrencies and mobile money among regulators could have critical consequences for consumers worldwide.
“Issues around banking and credit, including payments are very important to people and feature daily in the life of most consumers. These things impact consumers significantly,” said Bernard Sheridan, chairperson of the Financial Consumer Protection Organisation (FinCoNet) during a meeting hosted by the African Institute for Financial Markets and Risk Management (AIFMRM) at the University of Cape Town (UCT).
FinCoNet is an international organisation that was established in 2013, comprising of supervisory authorities responsible for financial consumer protection. Among its members are: the Financial Conduct Authority in the UK, the Financial Consumer Agency of Canada, the Financial Services Agency in Japan, the Netherlands Authority for the Financial Markets, the Central Bank of Spain and the Financial Services Board in South Africa.
The organisation held its annual meeting in Cape Town between 12 and 16 October and on the final day, convened an international seminar at UCT with local and global financial experts, which looked at regulatory changes in South Africa and the complexity in retail financial markets.
“Modern technology has fundamentally changed the financial system,” said Co-Pierre Georg, Senior Lecturer at UCT and Acting Director of the AIFMRM. “This event has emphasised the importance of reforming the training and education of market participants and regulators to cope with this change.”
He added that consumer protection was a strong focus point of both AIFMRM and FinCoNet. Most of the sessions at the seminar also looked at how people are increasingly more at risk financially as markets, financial systems and banking systems become more complex and sophisticated.
Cybercrime is a growing problem worldwide. Results from a study by marketing research firm Columinate revealed that South Africa is the third highest cybercrime hotspot in the world, with 50% of credit card fraud happening online. The Office for National Statistics (ONS) in England and Wales also published the results of a survey in October that showed alarmingly high levels of online crime, with up to 5.1 million incidents of online crime involving 3.8 million victims in the past 12 months.
The survey estimated that there were 2.5 million “computer misuse” incidents, where a victim’s computer was infected by a virus.
During a panel discussion at the FinCoNet seminar, international experts Paolo Tasca from the Deutsche Bundesbank, Maria Lucia Leitão from the Banco de Portugal and Gert Luiting from the Netherlands Authority for Financial Markets (AFM) as well as local experts, discussed the challenges regulators face regarding new technologies, cyber crime and online transactions.
Luiting said there was currently no universal global regulation for new financial technologies, with each country taking its own approach. “But fintechs are not bounded to jurisdiction, they can do business anywhere,” said Luiting. Caroline da Silva from the South African Financial Services Board pointed out that some criminal activity is more difficult to follow online as the use of multiple servers and accounts makes it harder to trace money being exchanged.
The panel warned that the future would increasingly feature more online and mobile technologies, with sophisticated apps and services, while customers on the other hand, would not necessarily be more sophisticated or literate financially. This could place them even more at risk to criminals.
“Currently, the risk for financial crime is very high,” said Tasca, adding that money laundering and illegal money transfers could be easily done across networks. He also said activities were easy to hide from authorities.
“But there is a positive side,” said Tasca. “If regulators start to intervene and learn the technology they can do much better than they are doing now. Because the beauty of this technology is that every transaction can be traced, it can be followed from one hand to the other. It is not like cash. As soon as regulators understand these technologies better we can address this criminal activity.”