The dark side of Fintech

?THE NEGATIVE SIDE OF FINTECH

?The emergence of Fintech with a boom. The spread and proliferation across the world have been exponential and astonished everybody. among other things, are the key risks in relation to claims arising from data breaches and misuse.

Putting digital ethics back on the agenda

There is a growing spotlight on ethical principles such as fairness, transparency, accountability, and access in tech. As the framework around digital ethics continues to evolve, the need to discuss the hot topics for regulators, where the grey areas exist, and how to deal with key ethical considerations.?

GLOBAL LEGAL AND REGULATORY UPDATES

?In order to the early formulation of rules and regulations in the working of Fintech, a number of discussions on this aspect have been happening from 2022 globally. Some of the important meetings are enumerated below:

AUSTRALIA

International Organization of Securities Commissions (IOSCO)?reported?on the ways in which decentralized finance (DeFi) is evolving to reflect conventional financial markets and also plans to set up a task force to further examine DeFi risks. ?The Bank for International Settlements Innovation Hub and the central banks of Australia, Malaysia, Singapore, and South Africa have announced the completion of 'Project Dunbar', a joint initiative to test a multi-central bank digital currency (CBDC) platform for international settlements. The announcement states that Project Dunbar fruitfully demonstrated that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform. ?Organization for Economic Cooperation and Development?conference on a proposed reporting framework for crypto assets, which is planned to enhance transparency for global tax authorities. The proposals would require crypto-service providers to report on transactions and follow stricter requirements around the identification of their users. Financial Stability Board?stated?the impact of the COVID-19 pandemic on the ways in which individuals and firms engage with innovative financial service providers and traditional financial incumbents. ?IOSCO??on the risks posed by recent trends in retail investments, including the increasing use of digital trading platforms, gamification techniques, social media, and crypto-assets.

?????Treasury?meeting on a proposed set of minimum licensing and custody standards for crypto-asset secondary service providers. The proposals are based on the?endorsements?made by the Senate Select Committee on Australia as a Financial and Technology Centre. In a speech?by Senator Andrew Bragg in which he declared plans for a new Digital Services Act. The Act would bring together various legislative initiatives to reform the digital asset ecosystem in Australia and would be based on principles of technology neutrality, broad and flexible provisions, and regulation by Ministries rather than bureaucratic agencies. Bragg also discusses plans to review the taxation of digital assets and decentralized autonomous organizations.?

Argentina:???Technical Memorandum of Understanding between the Argentine Minister of Economy, the country's central bank, and the IMF. The agreement, if voted through by the Argentine Senate, would restructure a USD 45 billion loans received by Argentina in 2018. It contains a provision stating that Argentina will seek to discourage the use of cryptocurrencies 'with a view to preventing money laundering, informality and disintermediation'.

Honduras:???Central Bank of Honduras?directive?(in Spanish) in which it clarified that Bitcoin and other forms of crypto-assets are not regulated in the country and are not recognized as legal tender.?

USA: ???Accountability for Cryptocurrency in EI Salvador Act, ?which has been approved by the Senate Foreign Relations Committee. The Bill, which was sponsored by Senators Jim Risch, Bill Cassidy, and Bob Menendez, sought to mitigate the potential risks posed by El Salvador's adoption of Bitcoin as legal tender. If passed, it would require the State Department to produce a report on the risks and an action plan for mitigating them. It requires?containing practical guidance on identifying and managing AI bias.?

INDIA:??MOF?while replying?to a parliamentary question on, inter alia other things, the new tax policies for crypto assets which are expected to come into effect on 1 April 2022. The response states that traders are not permitted to offset their losses from one crypto asset against the profit on another.?

THAILAND:?? The Securities and Exchange Commission(SEC) has announced the issuance of new regulations on the provision of services by digital asset business operators. Particularly, the regulations ban digital asset business operators from providing any services or performing any activity that promotes the use of digital assets as a means of payment for goods and/or services. The regulations enter into force on 1 April 2022 and digital business operators have thirty days in which to comply.?

EUROPE EU:??EU Parliament's Economic and Monetary Affairs Committee?statement?containing its negotiating position on the EU Commission's Markets in Crypto assets (MiCA) proposal. The Committee announced key elements of its position on 14 March 2022 but had not published the report having the full set of amendments until now.

EU Parliament's a glance report?sets out the key elements of its negotiating position on the EU Commission's proposal for a regulation on a pilot regime for market infrastructure based on distributed ledger technology. European Data Protection Board?discussion?on draft guidelines on 'dark patterns' in social media platforms. Dark patterns are interfaces and user experiences that lead users into making unintended and potentially harmful decisions regarding the processing of their personal data. The draft guidelines are intended to provide practical recommendations to designers and users of social media platforms on how to assess and avoid them. ?

IRELAND:?? Central Bank of Ireland?cautioning?on the risks of investing in crypto assets. The Bank warns investors of the risky and speculative nature of crypto assets and advises people to be aware of misleading advertisements, particularly on social media.?

UNITED KINGDOM:???Financial Conduct ?Authority?notice?reminding its regulated firms of their existing obligations when interacting with, or exposed to, crypto assets and related services. Prudential Regulatory Authority (PRA) highlights the aspects of the existing regulatory framework that the PRA expects its regulated firms to consider when measuring and mitigating risks resulting from crypto-asset exposures. Bank of England (BoE) Financial Policy Committee report?setting out its assessment of the role and financial stability consequences of crypto assets and DeFi in the UK and globally. ?BoE report?briefed the responses the BoE received to its discussion paper on new forms of digital money, which was published in June 2021. The report also sets out the BoE's planned next steps on CBDCs and stable coins, including consulting on the merits of further work to develop an operational and technology model for a UK CBDC, further assessment of the implications of stable coin regulatory models, and further consideration of how to deal with the potential failure of systemic stable coin entities.

?Competition and Markets Authority (CMA)?letter?to the Open Banking Implementation Entity (OBIE), following an keep posted?from the OBIE on the progress made on implementing the Open Banking initiative. The CMA briefs the final steps that should be taken to implement the initiative and calls on the OBIE to ensure they are completed. Standards Authority enforcement notice?on the advertisement of crypto assets. The notice instructs companies that advertise cryptocurrencies to review their advertisements and ensure they are compliant with the relevant rules. Reactions from HM Treasury?and the?BoE?to the recommendations in the House of Lords Economic Affairs Committee's report on the potential for a UK retail CBDC, which was published in January 2022.

?MIDDLE EAST: UAE:???Abu Dhabi Global Market (ADGM) discussion?on proposed enhancements to capital markets and virtual assets in the ADGM. Among other things, the ADGM is proposing to permit licensed firms to facilitate trading in non-fungible tokens (NFTs) (which it defines as intellectual property rather than investments or financial instruments) and to amend the requirements on the control of virtual asset public keys. The event's core themes are innovation, emerging technology, careers and equity, diversity, and inclusion. Law Perspectives Series: Legal, regulatory, and product challenges in insurance in light of cybersecurity and new technologies. IT systems, artificial intelligence, machine learning, and data analysis tools are all being increasingly used by companies in the insurance sector but are also potential sources of significant risk. Insurance companies and distributors are exposed to the regulatory risk associated with the creation and distribution of insurance products, and their clients to cyber risk and the risk associated with technological service providers. It is proposed to have a discussion on how to take advantage of the benefits of technology in a way that is effective and safe for both clients and the firms offering innovative services.

?In the above global perspectives, the Metaverse has also been included, as more and more companies started to invest heavily in the Metaverse, Clifford Chance's panel of experts will consider the practical applications. it's likely to have and explore the legal issues that may arise as it grows. With questions of data security, privacy, IP, copyright, antitrust, diversity, and ethics starting to be linked to the Metaverse, ?experts will analyze whether problems of the real world could take on a new, more worrying dimension in a virtual one. And as global banks start to take a presence in the Metaverse, it requires a review of the implications of a new economy opening up where wealth can be created, traded, and enhanced using new digital currencies.

?? CHINA:????China’s central bank set out the main principles of its fintech ethics governance system in its Fintech Development Plan (2022-2025). China’s central bank (POBC) is storming up efforts to set up an ethics governance system for the fintech sector by the end of the year which will also tighten supervision and tackle risks, suggesting regulation of the industry is far from over. As algorithms and new technologies including blockchain, AI, and big data become increasingly embedded in financial products and services, China’s authorities want to make sure financial institutions and technology companies involved in financial services are operating in an ethical way. They also want to put a regulatory framework in place to hold businesses accountable and punish wrongdoing.

?People are also invited to participate in these issues and provide inputs, and suggestions by examining the role of ethics and integrity in finance from many possible practical angles and disciplinary perspectives, well outlining intellectual rigor, innovative ideas, and clear conclusions. The awareness of the fundamental role of ethics in the world of finance; precise identification of ethical issues in financial activities and institutions, in both the public and private sectors; proposals for implementation of initiatives and projects concerning teaching and regulating of ethics in finance; grasping of the role of ethics to support a more sustainable financial system.

?UNWANTED HARMFUL CONSEQUENCES AND ETHICAL CONSIDERATION OF FINTECH ADOPTION

The ongoing wave of globalization blended with the competitive business landscape, Undoubtedly, technology will play a prioritized and regarded as the competitive edge for businesses to compete successfully in the marketplace. Technology has transformed the consumption experience and changed the way business is to be conducted in many sectors of the economy. The banking sector is one that is undergoing a radical revolution due to the prevalence of disruptive technological innovations, especially with the inception of Financial Technology. FT, better known as “FinTech” refers to IT-centered technologies and advanced software applications that aim to boost the efficiency of the financial ecosystem. Buoyed by the increasing smartphone penetration rate and the growing use of online commerce, banks are forced to adapt to this dynamic market environment by adopting Fintech innovations such as digitized money, paperless lending, and mobile wallets.

Since FinTech’s inception, businesses such as Alibaba Group, Paypal Holdings Inc., Samsung, Apple, Tencent Holdings Ltd, Afterpay, Klarna, and Robinhood Markets Inc. have been riding the bandwagon of FinTech. Prior research on it has consistently reported that financial innovations can offer various advantages for both consumer and business markets. For instance, it has benefitted businesses by lowering their costs of operations, providing them with alternatives to conventional banks' products, allowing them to offer personalized services, furnishing them with a fast and effortless payment system, and many more benefits. From the consumers’ standpoint, it has provided increased investment opportunities, access to insurance products, and the ability to use alternative payment systems such as mobile wallets, loans, and fund transfers. Referring to the potential of FinTech as highlighted above, it is undeniable that the promising trend of FinTech adoption has been regarded as a new phenomenon and a catalyst in the global financial ecosystem that has attracted the attention of industry players and consumer groups at large.

Although it could prospect of fetching significant benefits to industries and economies, there are many shortcomings associated with this technology. With more businesses venturing into it and going online, the issues of security and consumers' privacy are often at stake. For instance, the Global Fintech Survey report by PwC has reported that 56% of respondents who participated in their study indicated that issues of privacy and information security have been considered the main threats to the rise of FinTech. Apart from that, past studies have also reported that issues such as consumer protection, data breaches, trust, financial integrity, users’ inertia, adoption barriers, and ethical controversies are central concerns in FinTech diffusion. Given the transformative potential brought about by FinTech, it is clear that we need a fresh perspective to address these shortcomings and challenges. Therefore, there is a pressing need to investigate further the “dark side” and any potentially negative consequences as a result of FinTech adoption. In view of the above, this special issue aims to contribute to the debate, by soliciting papers on how to mitigate the dark side of FinTech in both business and consumer contexts.

? Some of the quantitative, qualitative, conceptual, or methodological contributions offer insight into this area. The following issues are not exhaustive but indicative: ed to, the following:

1.??Ethical issues related to FinTech, 2.??Risks related to FinTech, 3.??Barriers to FinTech adoption and solutions, 4.??Strategies for addressing the unintended consequences of Fintech, 5.??Responsible use of FinTech, 6.??Issues related to the addictive, problematic, and deviant patterns of use of FinTech, 7.??Security and privacy concerns associated with FinTech, 8.??Consumers’ psychological and behavioral responses arise from FinTech service failure, 9.??Personalization–privacy paradox in Fintech, 10.?The adverse effects of FinTech on individuals, organizations, and society, and 11.?Governance, strategy, legislation, control mechanisms, and management policy of FinTech usage, etc.

ETHICAL FINTECH: THE FUTURE OF BANKING

As mentioned above, the banking industry is undergoing a sea-change the industry faces challenges and opportunities on many fronts – from the pandemic recovery, the growing competition from technology companies, the call to respond to the threats of climate change, to the increasing demand for regulation to make most of this upheaval ?It also makes the role of risk managers extremely complex.?Neobanks, Fintechs, BigTechs, cryptocurrency exchanges – each one of them is disrupting the concept of banking and traditional financial institutions are either competing with them or in some cases investing?and/or cooperating with them to improve their customer experience. The major advance which has been changing the customer’s banking experience in recent times has been the switch to online and mobile banking. This started well before the pandemic but has accelerated over the last two years. In today’s era of unprecedented convenience and speed, and the need to be kept socially distanced where possible, ?many consumers don’t want to go to a physical bank branch to handle their transactions. This is especially true of Millennials and the older members of Gen Z, who have started to become the dominant players in the workforce (and the biggest earners. Critically for banks, at least 60% of mobile banking users research,

But more than just a change from real to virtual banking, we’ve now reached the point where simply having a mobile app isn’t enough for banks to attract and keep customers. Additional tools and features – such as two-factor or one-time authentication processes, the ability to put temporary holds on cards, view recurring charges, or scan a fingerprint to log into an account – are becoming increasingly necessary and expedient.

?A NOVEL WAY ?OF BANKING – ETHICAL FINTECH

Digital technology has reshaped the banking sector's work culture, and many more traditional banks, are facing a need to reinvent themselves and their culture – to embrace diversity and inclusion, foster innovation and new ways of thinking, and encourage transparency and new levels of trust with their customers. As regulated entities, banks must also strictly adhere to ‘responsible lending practices, in accordance with the current legal framework, to guarantee an adequate level of protection for their customers. This combination of innovation and risk management is ultimately their main competitive advantage and one which sets many banks apart from new fintech entrants.

?Finance is a strange industry. On the bright side, finance plays an important social role, from helping consumers buy a house to supporting small and medium-sized enterprises (SMEs) in borrowing money. On the dark side, people know those horror stories about predatory lenders and products that were mis-sold to bank clients. Investors and venture capitalists should demand that their start-ups communicate their values and should not tolerate unethical behavior. FinTech start-ups market themselves as being different from traditional finance which suffered from a lack of ethics but does not really regard ethics as a priority either. Employees should know what the values of the founders are before they make the leap of faith and join a start-up. Clients should question the values of the start-up and its impact on society in the short and long terms.

?Fintech cybersecurity: Need safety of ?banking and finance in 2022

According to estimates from leading analytics firm GlobalData, ?increased demand for cybersecurity will lead to global security revenues in the retail banking sector rising from $7.9bn in 2019?to $9.8bn by 2024. As the world’s payment environment becomes more cashless, the growth in digital payment transaction value increases. ?In GlobalData’s view, this translates to a growing opportunity for providers of cybersecurity products and services. To fend off cybercriminals, banking, and payment providers are looking to utilize?newer and more advanced security infrastructure and services. Cyberattacks are becoming more sophisticated thanks to AI and ML and self-learning malware. Phishing attacks meanwhile prey on vulnerable and na?ve customers, and for cybercriminals, ransomware is the most lucrative type of attack. In addition to keeping consumer data safe, providers themselves are at risk of attacks from cybercriminals.?GlobalData argues therefore?that in the modern payment market, it is vital that banking incumbents and fintech disruptors maintain a robust cybersecurity strategy for 2022. Being foolproof is one thing. For the strongest cybersecurity strategies,?financial entities will need to be future-proof as well.?Verdict, therefore, presents banking cybersecurity predictions for 2022, talking to various experts from companies such as Akamai, Fourth line, and KPMG UK about biometrics, deepfakes, and more?Rising rates of cybercrime means rising costs for banks as they face pressure to reimburse their defrauded customers en masse. Our recent research revealed that most consumers (67%) expect their bank to foot the bill for successful scams, regardless of the total amount lost. Over half (58%) of those who bank online are receiving scam attempts via email or SMS at least once per week, and 23% say they have been a victim of a cyberattack. Currently, banks are reimbursing authorized push payment (APP) fraud On an average of 46%., but government-backed plans?Will make it 100%. This is just one example of why banks need to push cybersecurity higher up the agenda in 2022 if they are to protect both their customers and their bottom line. Banks will need to work collaboratively with governments and industry bodies to share effective strategies. There also needs to be continued work to educate the public on preventative measures,?but ultimately the buck stops with the bank.

?CONCLUSION

People are charmed by the new mobile bank and many FinTech apps which they never imagined before. The fast delivery, and getting KYC verification with augmenting technology have accelerated the use of these services by smartphones. Excluding physical cash, there is almost no need to visit the customers. We can not stop the sweeping changes but aid them, as this is the necessity of time and ease of doing business. Just, for example, the FinTech Paytm is offering everything enumerated as related to finance :

1.??All types of utility bill payments.

2.??All types of purchase of goods and services

3.??Clean spending limit/personal loan/ credit card/ account opening ?as per their AI, ML, and AL

4.??All types of insurances, share trading, ?DP just by using mobile.

5.??Convenient banking from any time, anywhere, and everything.

But, it is more pertinent to maintain customer secrecy, un bias, and no discrimination approach., ethical practices, and follow rules and regulations of the country. It was never possible to dream of entire financial products and transactions, just by having a smartphone.

?Great we are adopting mobile culture.?