Fintech

The challenges of GenAI in fintech

Published

11 months ago

20 May, 2024

Due to cybersecurity disclosure rules adopted by the Securities and Exchange Commission (SEC). adopted In 2023, public entities in the United States will be required to disclose any major cybersecurity incidents. Going forward, these organizations will need in-depth knowledge of the impact, nature, scope and timing of any security incidents. In the era of generative artificial intelligence (GenAI), this is even more complicated.

The financial services industry has historically been slow to adopt new technologies into its offerings, due to the incredibly sensitive nature of the personally identifiable information (PII) it handles on a daily basis. But GenAI’s rapid spread across industries and ease of access to the public make it difficult to ignore. Public fintech organizations are among those already grappling with SEC reporting requirements, and GenAI adds a new level of uncertainty.

GenAI in fintech

Fintech is just one of many sectors wondering how to best approach the use of GenAI. Its capabilities can lead to increased productivity and greater efficiency and can allow employees to focus more on priorities. Specifically, GenAI can accelerate critical processes such as fraud detection, customer service, and in-depth analysis of massive collections of PII and other data.

To do this, GenAI must be trained with the correct, niche data for each use case; otherwise, the model will hallucinate or exhibit underlying biases.

GenAI is already known for making companies the subject of unfavorable news. More recently, the infamous Canada Air chatbots caused problems when a passenger purchased a plane ticket after speaking to the AI and being reassured that he would receive a refund for inflated last-minute fare costs due to its bereavement policy. When the passenger later went to collect the refund, Canada Air informed him that the chatbot had provided incorrect information about the policy and that no refund would be given. Courts have ruled otherwise and have held that AI-based chatbots are extensions of their associated companies.

No one wants to be the next big news story due to an AI malfunction, but fintech companies may need to pay more attention to staying ahead of such scenarios with SEC reporting requirements.

The security implications of GenAI

While some organizations and their boards of directors have an “all-in” mindset on using GenAI, others are watching and waiting. Fintech companies that have already started using the power of GenAI will need to lay the groundwork to ensure they have full visibility of its use across networks. And those who are taking a slower approach to GenAI will need the ability to ensure this Shadow AI it has not infiltrated workflows.

As threat actors continue to aggressively pursue data exfiltration and ransomware attacks, industries with valuable PII will also have to worry about AI-based attack capabilities used by cybercriminals, including exploiting AI to find vulnerabilities that could lead to extreme data breaches. Threat actors have already experimented with AI-generated spear-phishing campaigns with realistic deepfakes and other content to exploit human employees, and we are seeing evidence of AI-written malware.

Organizations must be prepared for the worst. To meet transparency requirements set by the SEC and ensure that GenAI does not pose an overall security risk, the task of laying the foundation for AI infrastructure is a top priority for organizational leaders and their boards of directors.

The basics of AI infrastructure

Boards and executives pursuing solutions that align with SEC rules and take into account the public availability of GenAI should consider emphasizing tailored infrastructures for holistic visibility and education: forensic analysis, auditability, AI governance and employee training.

You can’t manage what you can’t see, meaning risks like shadow AI will become rampant until organizations can gain insight into how, if at all, GenAI is being leveraged in internal processes. Any AI activity on internal networks should be easily viewable and monitored for anomalous or unwanted uses.

Additionally, the ability to log and monitor GenAI usage across internal networks as part of AI forensics automatically enables fintech companies to identify, track and mitigate potential security risks arising from GenAI. Since the SEC’s requirements include providing comprehensive details on security incidents, the ability to monitor AI activity through AI forensics on internal networks will be a critical skill for the future.

Another aspect of GenAI’s forensic intelligence and auditability that will prove critical is the ability to provide forensic information down to individual tips. Currently, companies do not have the infrastructure built to track and monitor AI usage. In cases where employees accidentally or intentionally provide sensitive information to the AI in the form of prompts, having GenAI history on file showing every prompt used internally will be invaluable for reporting purposes.

Education and training of employees on the use of GenAI and how to responsibly exploit its benefits are other key factors in complying with SEC regulations. Many popular large language models (LLMs) such as ChatGPT and Copilot are public repositories of data from the powered language, meaning that any PII accidentally entered into the model can potentially constitute a data leak. With proper education and training, employees will better understand how to appropriately use GenAI and minimize the risk of data breaches caused by improper use.

As boards and organizational leaders continue to consider the implications of GenAI in fintech and whether they should accelerate its adoption or wait, the SEC’s impacts on GenAI adoption are clear. The onus is now on public companies to better monitor and mitigate security risks, forcing high-value industries to reconsider their security and AI strategies.

By creating the foundation for GenAI governance and auditability, fintech companies can better prepare for the inevitable risks that come with stopping and pushing GenAI adoption. In fact, it’s the next logical step.

Source

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

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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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To come
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.”