The World Economic Forum recently released a report that looks at how technology-driven risks in the financial services sector could become systemic threats to the global financial system.
The report examines the forces that influence the way tech-driven risks spread, like social media manipulating stock markets and “buy now pay later” services leading to more consumer debt. In addition, it explores geopolitical risks, such as the financial system’s vulnerability to state-sponsored cyberattacks.
Further, the report, done in conjunction with Deloitte, offers recommendations to stem these risks.
“While continued tech integration into the financial system has many benefits, it’s important that industry leaders, regulators and consumers be aware of emerging tech-driven risks and take appropriate action to mitigate them,” said Drew Propson, head of technology and innovation in financial services at the World Economic Forum. “As the financial system becomes more dependent upon technology, new risks are surfacing as a result and it’s essential to apply solutions throughout the financial services ecosystem to ensure resilience and stability in coming years.”
Among the ways to mitigate the risks, the report suggests promoting trust-enhancing products and services that reinforce financial system stability; dismantling information siloes to better identify tech-driven risk at the ecosystem level; and ensuring predictive analytics capabilities reflect geopolitical and regional uncertainty and are applied to resilience efforts.
“Our experience over the past few years has shown that powerful new vectors for systemic risk often enter the financial system from unexpected sources. Compounding this challenge, better interconnectivity between financial and non-financial players means that the speed at which new products and services emerge is now measured in weeks, not years,” Rob Galaski, vice-chairman and managing partner of financial services at Deloitte Canada, said. “This all points to the need to monitor and mitigate systemic risk at the level of the entire ecosystem. To do this, the industry will rely on data to build a clearer picture of the complex web of links between financial institutions, technology vendors, consumer platforms, social service providers, and other players – and predictive capabilities like AI to spot and evaluate risk vectors before they become systemic.”
The report is the second in the Forum’s two-part Technology, Innovation and Systemic Risk initiative. The previous report, Beneath the Surface, examined sources of tech-driven risks and how these could potentially converge and become systemic.