The rise of technology in the financial advice industry has largely been a success. This was especially the case during the pandemic, as advisers had to utilise fintech tools and communication apps to continue running their businesses.
But, according to the Financial Conduct Authority (FCA), sometimes advancements in tech can lead to detrimental issues for retail investors – who may not be aware of the dangers of the technology.
Jessica Rusu, chief data, information and intelligence officer at the FCA, said during a speech on 2 November 2021: “Fraudsters and scammers are also benefitting from new technologies. Cryptocurrencies are a great example. Although crypto provides a potential area of benefit for firms in terms of improving efficiencies and driving down costs – it also provides a serious potential for exploitation and harm.
“New kinds of consumers are being drawn to these markets – and their reasons aren’t always conventional or rational. Our recent surveys suggest more than three quarters of people investing in high-risk products are motivated by competition with friends, family and acquaintances. And more than half say that hype on social media and the news drove their decisions.
“Influencers on YouTube, Instagram and TikTok are having a growing impact on younger investors in particular. It’s also clear that some of these investors don’t necessarily understand the risks they’re taking. In fact, the majority of people who’ve bought forex or crypto don’t understand that these are unregulated and unprotected.
“Therefore, cryptocurrencies continue to be high-risk for consumers, highly volatile for markets, and highly likely to be used in financial crime.”
In a bid to help the financial services sector keep up with tech advancements, the FCA is focusing its efforts to protect customers in three ways.
It is warning investors about the risks involved through traditional strategies, as well as educating them with ScamSmart and InvestSmart campaigns.
Second, it has been engaging with social media platforms to ensure they are complying with laws that prevent communication of unregulated investments. Lastly, it is using digital listening tools to help it collect data on everything from mortgages and investments to fraud and scams.
Rusu added: “The financial services industry has undergone a data-driven revolution in recent years – transforming the kinds of products and opportunities available; how firms offer services and interact with customers; as well as how risks are qualified, and decisions made.
“My role is to build the digital regulatory future of the FCA whilst expanding and protecting the intelligence and data assets we hold. A data-driven industry needs a data-led regulator – a regulator which understands how data is used and leverages the same techniques as in industry to prevent harm, tackle poor practice, and support innovation and growth – enabling financial services to be the best they can be.
“Data is also central to our own transformation as an organisation. The innovative use of data and technology increases our ability to act decisively – because when collected and interpreted in the right way, it gives us greater insights, more quickly.”