The Introduction Of Fintech: The Issues Of Cyber Security

Traditional financial institutions are currently transforming into a new era of innovation, while introducing technology into the field of financial services (Fintech). Fintech has been growing rapidly since Paypal was first recognized. It brings a bunch of benefits for startups as well as organizations. According to the president of Pintech, A Chinese fintech startup, Zhou Jing, said that the growth of Chinese industry’s is because of people are getting addicted with the mobile phones and applications. In the past, people did not have smartphones, and they did not have access to information or services that are readily available when they live far away. Today, we can reach out to customers who live far away places without opening a bank branch. Individuals can now provide retail financial products to the majority of the population in China at marginal cost, or close to zero. Nonetheless, the revolution of financial and banking services industry come along with problems and disadvantages.

First, companies are now facing more dangerous cyber security issues that could affect millions of users. Cyber security is a technique to protect networks, devices, programs, and data from unauthorized access or attacks. Along with all the new technology that has boosted the growth of today’s diverse FinTech sector, the number of cyber attacks keep on rising since 2012. According to Equifax, over 143 million accounts were compromised in a massive data breach, in which hackers stole passwords, names, and other important information from account holders back in September of 2017. Although some larger financial institutions have the capabilities to secure their websites, but smaller firms may not because of limited resources. Criminals are now expert at finding weak links in the security chain and once they get in, they can explore other weaknesses to increase their control. In addition, it enables them to have unlimited access and attacks without being detected. Many institutions have numerous security tools that add complexity rather than providing solutions. The security tools will not provide the visibility security teams need to establish seamless, holistic protection that is necessary to keep up with today’s threats when these tools do not communicate efficiently. For example, the problem of Distributed denial of service attacks (DDoS) occurs when a website receives heavy traffic volumes that disrupt normal activity, usually freezing up the site for several hours. This attack achieved notoriety in the fall of 2012 when large banks were hit by a cyberterrorist group. According to Verisign’s report, the number of attacks against the financial industry doubled to account for 15% in the fourth quarter of 2014. Other than that, 43% of the bank targets were hit more than six times which stated in Neustar’s report. “Cybersecurity is not very good in China, A lot of information is bought, stolen and traded, so the government wanted to tighten that up.” Statement proposed by Jim Fitzsimmons, a Singapore-based director of the cyber consulting team at Control Risks, who has been helping multinational companies on the Chinese mainland adapt to the regulations.

Besides, FinTech activities need to adapt the regulations because they are innovative, and are not covered by existing legislation, legal and regulatory frameworks. As the number of FinTech startups continue to increase, the government has extended the rules and regulations and many of these rules have implications for its technological systems. This requires more sophisticated software for monitoring risk and ensuring regulatory compliance. Now, a FinTech business needs to consider at an early stage whether it requires regulatory approval to conduct business. So far, there is no single comprehensive law regulating the FinTech businesses in China. However, it applies different types of administrative measures and guidance regarding financial products or services. Other than that, the block chain rule issued by Crypto Assets Conference (CAC) also demonstrated the government’s efforts in the fintech market. All blockchain information service providers are required to file their company via online management system within 10 days of their provision of service. According to the Block Chain Rule, CAC and its local offices may issue a rectification order or, in serious cases, issue a warning and impose a penalty of up to RMB 30,000 if the blockchain information service providers unable to file with CAC or submits misleading information when filing.

Last but not least, within the financial system, certain FinTech activities could increase third-party dependency. For example, a limited number of parties could provide cloud computing services, which could have significant implications for a range of cloud-based financial services in the event of operational issues. Disruptions to these types of third-party services are more likely to occur systemic risks. The more central these third parties are in linking together, multiple systemically important institutions or markets, possibly due to operational difficulties. According to the news that happened in 2017, there has been a technological disruption to the famous cloud service of the Amazon which houses their data. The Simple Storage Service of Amazon, had trouble sending and receiving customers’ data for more than 3-1/2 hours. Furthermore, robo-advice and FinTech lending may depend on a set of highly concentrated third-party data providers. The third parties may different from traditional financial institutions such as telecommunication in the case of retail payments.