Fintech

Data protection gaps in fintech

Published

11 months ago

26 May, 2024

In our previous article, “Regulatory gaps in Nepalese fintech” (March 14, 2024), we discussed some regulatory gaps in fintech. In this article, we will focus on regulatory gaps mainly related to cybersecurity and data protection that Nepal Rastra Bank (NRB) needs to fill quickly. The fintech ecosystem in Nepal is growing, but remains fragile in terms of cybersecurity and data protection. The NRB Regulation should promote fintech innovation while also considering the importance of data protection and security.

Technology evolves and with it so do cyber attacks. In 2019, hackers stole nearly 18.9 million rupees from 13 Nepalese banks using ATM terminals. They spoofed the Nepal Electronic Payment Systems Limited (NEPS) link using fake cards, which allowed them to withdraw money from ATMs by independently verifying all customer information of the Nepalese bank. This incident was one of the most notable cases of cross-banking transactions via ATM hacking and could happen again. Therefore, the NRB should be aware of such incidents. The court decided to punish the perpetrators of the crime; however, since it was not a physical loot, a detailed investigation to uncover the root cause would have been an appropriate action by the central bank. Such investigations could provide insights and further strengthen the system security of such banking and financial companies and institutions in Nepal.

Article 44 of Payments and Settlement Regulations, 2077 (First Amendment, 2080) addresses the liability of payment system operators (PSOs)/payment service providers (PSPs) in the event of disputes or any other losses resulting from incidents such as cyber attacks. However, the absence of explicit guidance on the extent of liability raises concerns. For example, a PSO with a paid-up capital of 50 million rupees must be given clear guidelines on its liability in a worst-case scenario, or there must be a limit on the amount of its clients’ funds it can retain.

Furthermore, it is the right time to introduce a government guarantee fund, such as the Deposit and Credit Guarantee Fund (DCGF), to protect the public from losses resulting from data breaches and other cyber incidents. If the government had established such funds, it would have been more vigilant and strict on cybersecurity measures. This would be a win-win situation for all parties.

Additionally, there are no insurance products available in Nepal to protect businesses against any losses due to data breaches or similar security incidents. Lack of insurance coverage makes businesses vulnerable to hacks and losses. It may be appropriate for the regulator to open a path for Nepali companies to obtain cyber insurance, including from foreign companies, until Nepali insurance companies launch such products.

Similarly, article 45 of the Statute and Directive no. 3 of NRB Unified Payment Systems Directive, 2079, discusses security policies and practices for PSO/PSP. Implementing a uniform requirement for the Payment Card Industry Data Security Standard (PCI DSS) and the International Organization for Standardization (ISO) 27,000 certifications across all financial institutions involved in payment processing would ensure a foundation of data protection, mitigating the risks of cyber threats. The language of the Directive is clear: an authorized institution must adhere to PCI DSS, Europay, Mastercard and Visa (EMV), EMV Contactless Standard, etc. standards. However, a mechanism to ensure that these standards are followed is unclear. If it had been mentioned that certification like PCI DSS is mandatory, it would have made more sense since an independent third party always issues a certification.

Likewise, regulatory requirements always serve as the basis for safety, and these NRB guidelines are the minimum requirements spread throughout the industry. Furthermore, data security is not a matter of just protecting it for a certain period of time; it is a regular and ongoing activity that requires the attention of stakeholders. Likewise, if we look at the websites of most payment-related companies, except for a few big players, we don’t find much information related to their security and related certifications.

It is necessary to introduce a provision requiring each authorized institution to disclose its licenses and certifications, commitment to data security and other related matters on its website and to update it regularly to increase public awareness and invoke dialogue between stakeholders. Similarly, Article 45 of the Statute contains a provision for system audit while also mentioning a provision for an annual system audit. On the contrary, the Directive establishes that a system audit is mandatory after one year of operation and every two years when there are no changes to the existing system. These two provisions are contradictory to each other and the regulator needs to provide clarification on this matter. Two years to conduct a system audit is quite a long time, so payment-related institutions need to conduct at least an annual system audit in light of the increase in cyber threats in the current environment.

Awareness of cyber threats and cybersecurity is an urgent need today as most occur due to human negligence. Social engineering is the most common way intruders can collect data and find loopholes in a payment system. To improve cyber risk measures, you need visibility into your organization’s risk dashboard, covering all inherent risk levels to provide a picture of what is being defended. Finally, continuous monitoring ea proactive approach Risk management is the only way against cyber attacks. The country’s payments industry is still in its infancy, and before something worse happens, all stakeholders must join forces to protect the public interest.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

Source

Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”