Since the beginning of this millennium, we have witnessed the emergence and even the explosion of digital technology. The financial services sector is no exception with fintechs.
This is creating new ways of doing business for the industry, its intermediaries, and consumers, with its share of benefits, but also challenges and concerns. The benefits and risks posed by these financial technology companies were the subject of a roundtable presented at Université Laval as part of the official launch of the Laboratoire en droit des services financiers (Financial services law laboratory), which was created by Cinthia Duclos, a lawyer and professor at the institution’s Faculty of Law.
Described as a “somewhat wild project” by the dean of the Faculty, Anne-Marie Laflamme, the lab has given itself several missions: to accentuate the synergy between teaching and research in the field of financial services law, to popularize and transmit its knowledge, to train a new generation of creative lawyers in this sector, to better educate and protect consumers.
“One of our wishes is to develop new areas of research in the field of insurance,” said Duclos at the launch. The lab’s next activity will be a conference in the fall on the holistic approach to investor protection in the field of life insurance and securities.
New players
One of the panelists, Éric Jacob, superintendent, client services and distribution oversight, at Quebec regulator, the Autorité des marchés financiers (AMF), and chair of the Canadian Insurance Services Regulatory Organizations (CISRO), said that the financial industry is undergoing a transformation. We are in the midst of this change, which has been accelerated by the COVID-19 pandemic. This shift is marked by many upheavals. “New players have come in and disrupted the financial industry, both in a positive and negative sense,” he said, noting the arrival of smaller, creative players who sometimes don't know or care about regulation.
“In some cases,” said Duclos of the growth of fintechs, "they have simplified or solved problems, but in other cases they have created issues.
For the AMF, the advent of fintechs has shaken up several things. Digital transformation and automation call for an agile and efficient framework, said Jacob. “It's important to take into account the presence of new players, but also institutions that are major employers and respect the framework. The role of the regulator becomes even more important in maintaining the balance between its mission to assist and protect consumers while promoting a healthy and dynamic market.”
Multiple applications
In the insurance industry, fintechs are now present on many levels. Dominic Veilleux, a lawyer at Beneva, summarized them during the roundtable: data-driven product design, pricing, customer services, automated decision-making based on historical data, computerized form entry, intelligent identification of calls and emails or potential identification of fraud cases.
For policyholders, they can take the form of sensors and self-monitoring systems such as smartwatches, telemedicine, driving telematics, online group insurance and annuity enrollment, online claims and price comparison, e-signatures, and secure extranet platforms for customers and insurance representatives.
Backlash and challenges
Fintechs, digital platforms, big data, artificial intelligence are bringing about some rather profound changes for consumers and investors who are facing an explosion of choices from different markets and access to products they didn't have access to before.
"The benefits have convinced many consumers. It's clear that the phenomenon will continue to grow at a rapid pace," said Jacob. The generations entering the workforce have advanced digital and technological skills that are driving these needs forward.
But democratization thanks to fintechs can have a downside, said Duclos.
"The multiplication of services raises security issues, agreed the AMF representative. Believing oneself to be autonomous can entail risks.”
Marketing practices of some digital service providers aim to exploit certain consumer behavioral biases. Add to this the fact that consumers are now using non-traditional sources of information, such as social media or a new phenomenon that Cinthia Duclos recently learned about – fintech influencers.
Security issues
With new technologies, we are witnessing a generational shock, and important issues,” said Dominic Veilleux of Beneva. He listed information security, internal and external breaches due to hackers, privacy and consumer solicitation. However, there also are security barriers, guides for insurers to follow, the implementation of controls, and the appointment of several people responsible for managing information technology risks.
He also pays particular attention to vulnerable clients. He mentioned cases where insurance representatives were designated as beneficiaries of an insurance policy or annuity contract. There should be special measures in place, especially when vulnerable people such as the elderly are concerned, he said.
