rgame whatsoever and that all worked out splendidly. There is a lot of liquidity looking for yield and an understandable reaction against the banks and other traditional providers (the Trump Effect). The financial institutions are having to cope with the burden and cost of
regulation capital adequacy, the limitations
of legacy systems and old technologies, not
to mention significant capital absorption in
buildings and infrastructure.
So, we have the perfect storm: lots of
money looking for return, a disenfranchised
potential market and public distrust and
a bunch of new players with often limited
knowledge and experience of the risks
involved in providing finance. More worrisome, the obvious attraction for the latest
generation of get-rich-quick merchants.
What could possibly go wrong?
Despite the fanfare, we are a long way off
from a tipping point when it can be honestly
stated that the Fin Tech industry has significantly disrupted the traditional sources of
I am not saying it won’t happen; we are
still on the long family car journey with
the kids in the back asking “Are we nearly
The question is: Are the Fin Tech investors
and, in some ways more importantly, the
investors, buyers and lenders on these plat-
forms, really aware of all of the risks?
Of course, we can quote “caveat emptor”
or “buyer beware” and move along, nothing
to see here. However, if this is a bubble and
it sort of looks like a bubble with what feels
like a new Fin Tech start-up every day, then
the Fin Tech movement may want to think
about another risk that can be more terminal than all the other risks mentioned and
that is reputational risk.. TSL
Richard Hawkins, CEO of Atlantic Risk, which
provides a range of risk management services
to many financial institutions across the globe,
comments on the emerging Fin Tech industry
and raises concerns over the apparent lack of
understanding and acknowledgement of the
potential threats and risks posed to this sector.
They must wonder what these people
have been doing all this time, slowly
grinding through the gears, creating credit
submissions, portfolio management regimes, conducting field examinations and
audit reviews, forming trade associations,
developing best practices, training staff and,
God forbid, visiting people you are going to
entrust with money.
This all brings to mind the famous quote
that “if you ignore history, you are damned
sure to repeat it.”
So what are the risks? Here are just a few
to mull over: seller risk, buyer risk, transac-
tion risk, product risk; this is before we
even get into cyber risk, imitation risk and
The invoice finance platforms have managed, in some instances, to have coupled
two of the most deadly risks: seller risk and
The seller risk has been the problem
that has plagued the commercial finance
industry, but is usually mitigated through
portfolio spread, which is absent here, and
the transaction risk that has had devastating impact on a number of trade finance
providers that have disappeared through
the weight of impairment.
You can now, through a portal, finance
multiple transactions online, by onboarding
digital credit scoring and electronic interfaces, all at rapier speed. The very thing that
makes the use of these platforms attractive
-- ease of access, speed of transaction, high
advance rates – are, of course, the exact
opportunities that attract the unscrupulous
opportunist, the dedicated fraudster or even
entrepreneurs who have had a stumble and
just need a cash injection to get them back
on their feet again.
A major concern with some of the
Fin Techs is that very often the generator or
purveyor of the transaction is not on-risk.
Can anyone remember a time when the
creators and sellers of financial instruments
had none of their own skin in the game?
It is difficult not to draw comparisons
with the subprime mortgage industry where
the financial institutions which created and
sold the assets actually had no skin in the
Before being painted into the Luddite
corner, I shall declare that I have been and
remain an enthusiast of the impact technology can have on the provision and access of
finance and capital.
I am also an advocate of utilizing the
latest technology to improve and enhance
many aspects of risk management. There
are some very exciting developments out
there and we see it as part of our business to
continue to develop our services,. utilizing
all mediums towards creating the safest
outcomes for our clients.
Where I have a problem is when people
suggest that, through digitalization, they
have somehow created a risk-free asset
class or that, through technology, are able
to mitigate risk to an extent that it is really
not worth talking about. In fact, this is what
happens: go to any conference where there
is a Fin Tech panel or listen to any pitch and
the subject of doesn’t come up. I wonder
why that is?
This is despite the fact that there have
been a number of situations, since this sector evolved, where facility abuse and system
gaming has been prevalent.
So why is the subject of risk off-limits?
Why is Fin Tech evolving in its own ecosphere?
Do we have something to hide? Or is risk,
as far as the Fin Tech movement is concerned, just a known unknown?
This could, of course, be explained, if say
the Fin Tech movement had adopted a contemptuous attitude to the traditional methods of providing finance and, obviously, the
Fin Tech sector would have nothing to learn
from the dinosaurs that have been plodding
around for years.
revolver TSL OPINION COLUMN