Key insurable risks facing FinTech businesses
With the FinTech industry continuing to boom in the UK, the insurance market has responded to the demand for focussed operational risk insurance solutions.
FinTech businesses have a unique combination of exposures that are not catered for by traditional insurance solutions, however the insurance market is innovating and creating bespoke solutions. The following are examples of key operational risks facing businesses today:
Negligent advice, errors & omissions in the client services arena are common risks for any company providing financial services. This risk is potentially heightened for FinTechs who offer new products through new distribution models. FinTechs may also potentially assume additional liability where there is a reliance on third-party contractors.
New technology, new products and new distribution brings a wealth of opportunities, but also new regulatory exposures. FinTech companies will need to ensure they keep on top of the implementation of suitable and satisfactory risk management systems. As this market evolves, so will the regulatory environment. Keeping pace with regulatory changes and the need to consider differing regulations in multiple territories will be challenging.
Theft of funds
FinTechs may deal with a high frequency of funds movement. High volumes of payments, transactions and customer accounts can leave you vulnerable to theft. These thefts could be by an employee or external party.
Given the nature of your operations, FinTech companies are prime targets for cyber criminals. Network security, data breaches, ransomware or even a denial-of-service attack - as well as damage and rectification costs following these incidents - should be a major concern for FinTech companies.
Innovative technology is essential for FinTech companies - it is how you have disrupted traditional financial services - but this heavy reliance on technology infrastructure means firms can be vulnerable. Technology failure can mean customers are unable to access services resulting in lost income or lost customers.
Directors & Officers liability
The personal assets of directors and non-executive directors can be at risk where they are held liable for legal costs and claim awards from third party claimants arising out of alleged or actual wrongful acts committed in their capacity as managers of the company. Whilst the business will normally indemnify the individual directors and officers, in some instances they may not be willing or able to indemnify (e.g. due to insolvency) and therefore having access to an insurance solution should be at the forefront your of considerations.
The insurance industry will continue to innovate and try to keep pace with the new risks that will emerge as the sector continues to grow in the UK and around the world.
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