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Wealth Management

WHAT WILL THE NEW FINMA FINTECH LICENCE MEAN TO INVESTORS?

Recent news covered the Swiss Parliament’s introduction of the new FinTech licence to encourage innovation within financial companies that interested parties can apply for from the Swiss Financial Market Supervisory Authority (FINMA). Daniel Terry, CEO of IntaCapital Swiss (Geneva, Switzerland), that can advise interested companies in the qualification for FinTech licenses, gives his thoughts on what this will mean to the investor market, what the opportunities are for those in the UK and investors abroad and whether other countries should follow suit.

FinTech is a phrase that has been banded about in financial markets for a few years now. From financial start ups through to disrupter banks, FinTech seems to be the new Emperor’s clothes when it comes to investments. However, like any new entrant to the market, until it is established, few know of the real opportunities and risks.

Created to encourage innovation within the financial sector, the Swiss Financial Market Supervisory Authority (FINMA) is responsible for granting the licence that has more lenient requirements than a normal banking licence.  Permitting companies to accept public deposits of up to CHF 100m (with the provisos that the money isn’t invested or has interest paid on them), the FinTech licence can only be granted to a business registered in Switzerland.

With our main business based in Geneva, Switzerland and our regulated subsidiary in the United Kingdom (recently opened in Central London and the South of England), we have watched closely as the Swiss Parliament introduced the new FinTech licence.  A new financial regulatory category for Switzerland, FinTech sits between the regulated financial service providers/intermediaries (the least regulated financial professionals) and the highly regulated banks. This new ‘tier’ will be suitable for those financial companies operating inside Switzerland in the tech industry, including the growing crypto currency markets. 

Crypto currency is still in its infancy and the majority of the providers have little following or trust. We have already seen a rollercoaster of a ride with bitcoin for example that has soared by 60% this year from a crash of 75% in 2018[1]. IntaCapital Swiss is currently exploring an internet based crypto currency platform to help provide an interchange between real and physical currencies, which might include for example the possibility of banking retail store vouchers.  We believe it is these types of enterprises that would interest the new FinTech regulation.

But what does this mean to investors?  Will the introduction of FinTech create more opportunities and different financial platforms for investors to consider?

 As with all new innovations in finance, a level of safeguarding and assurance in investments are key.  The FinTech licence in Switzerland means that there is now more protection to invest into internet-based or ‘non-physical’ entities and may inspire more confidence to create investment and trading confidence in this sector. 

We believe that globally the move made by the Swiss government to introduce FinTech licences and the model of FinTech regulation will follow suite throughout the EU and the United Kingdom as popularity grows in ‘tech’ investments and the need to protect investors against fake online investments. Although already estimated that there are 1,600 fintech start-ups recorded in the UK alone[2] this year and over 11,500 organisations globally[3], the key is how many are robust enough to invest in and what security there are if the start up fails.   

Whilst many large Swiss financial institutions have existing ‘tech’ funds or operate subsidiary investment firms, they may consider consolidation under a new Swiss FinTech license. This also has the opportunity to pull investment from outside Switzerland back into its infamous financial bastion as foreign tech investment firms incorporate under the new Swiss FinTech license structure.

FINMA holds a high standard and those investment firms seeking a new FinTech licence will be subject to strict application qualifications and requirements. Whilst the process to apply is straightforward, FINMA has offered guidelines for applicants and those applicants will be subject to FINMA fees. 

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Wealth Management

HOW RESILIENT IS YOUR ORGANISATION’S SECURITY?

Kimon Nicolaides, Digital Services Group Head at MASS

 

Organisational security can be thought of like peeling the layers of an onion – with critical assets sitting in the middle protected by multiple layers, and if one layer is removed or breached, there’s another one underneath. At least that’s the way it should be – too often, however, we see a siloed approach to the different areas of security. In practice, physical, cyber and personnel security can be much more inter-related than many imagine.

The finance sector is arguably one of the more mature in terms of established security measures. However, it’s also vastly diverse, targeted by some of the most advanced threat actors, and one where even the smallest breach has the potential for significant impact, monetarily, or on market reputation, perception or confidence. Security measures should therefore be viewed holistically, led and understood by senior management, otherwise gaps for exploitation will be found by intelligent and experienced people, supported by an ever-growing arsenal of exploitation technology.

Here, we take a closer look at some of the things that comprise a holistic view of security – based on the approach we take with public sector and defence organisations.

 

Physical security

It may seem obvious, but the first layer to assess should be the physical access to your business. For all organisations, this step remains as true today as it ever has been – even for the finance industry where physical security principles have been established over many years.

This stage should go back to the basics of how an intruder could gain access, starting by reviewing the ‘perimeter’ controls. In fact, the first question is, ‘what is the perimeter?’. With the potential for distributed site facilities, linked remote assets, and supply chain dependencies, this simple question needs careful consideration.

Scenario-based analysis, using threat actor personas, motivations and objectives can really help by defining a where a ‘perimeter’ really lies. It’s also an invaluable methodology for exposing how an organisation could be exploited.

This stage should involve a review of physical controls such as fencing, access technology, CCTV coverage etc., including, their role in deterrence and detection of hostile reconnaissance activities.  Disrupting the planning cycle of attacks is often overlooked relative to direct prevention of unauthorised access.

Ultimately, security measures are only as effective as the people that apply them, so an understanding of human behaviours is essential. It’s important to consider how people’s actions affect overall site security and, why these actions occur.

Issues can range from the wearing of security badges in the street through to poor motivation and effectiveness of roving security staff or those monitoring CCTV. Simple and innocent human mistakes could form the seed of future security breaches.

 

Cyber security

The finance sector has progressed its cyber resilience considerably as it’s been dealing with threats for many years. But business sizes now range from the very large to the small and, as new forms of financial transactions evolve, protection becomes more challenging. There is an increased availability of cyber exploitation toolsets and associated managed services and coupled with a reduction in their cost – lowering the financial and technical barriers to advanced cyber-attacks.

This means that cyber security, even for the finance sector, needs to be taken to a new level and existing assumptions continuously challenged.

For example, while penetration testing regimes remain a vital tool in mitigating network cyber risk (including ‘CBEST’ which has been widely rolled out across the finance sector), these still remain a snapshot in time. While they deliver valuable depth of analysis within a network, they are often constrained in breadth of scope and can potentially leave vulnerability blind spots. Very frequent, lighter-touch cyber assessments can fill this gap as they offer a more dynamic view of ongoing vulnerabilities over a wider proportion of the estate, which could represent ‘low hanging fruit’ for the cyber actor. Assessments can be enhanced by applying modern threat intelligence techniques to rapidly identify existing compromises and potential weaknesses (including personnel and corporate digital footprint). This establishes a picture of cyber posture and vulnerabilities before any testing taking place.

Similarly, end-user device security is often viewed in terms of the encryption strength, keys etc.  However, modern methods of fault injection attack (a device’s response to artificially applied ‘fault conditions’ used to derive security credentials), can effectively sidestep assumed security measures, which would normally take decades to ‘crack’ using computer power. So, it makes sense to test a device’s vulnerability to fault injection, rather than assuming encryption alone will protect it.

For this reason, it’s crucial to examine the wider supply chain. In the finance sector, there is high dependence on suppliers of digital telecommunications and energy services, and when different systems are interconnected its challenging to pinpoint cyber resilience risks. Despite this, it’s possible to map complex information to establish risk, by identifying ‘hot-spot’ concentrations of dependencies that represent single-point failures within the complexity of the overall business operation.

 

The insider threat

The potential threat from insiders – those who might misuse their legitimate access to an organisation’s assets for unauthorised purposes – is often overlooked.

This is particularly true for financial businesses, where personal financial gain could be an incentive, or where security controls are so effective that hostile actors must exploit those with legitimate access to circumvent them. You can think of insider threat as the ‘grand master skeleton key’ of security, as there are few security measures that cannot be overcome by the right insider, or team of insiders.  Security compromises involving insiders can also have a disproportionately high business impact.

Yet many organisations consider insider risk to be mitigated simply by pre-employment screening and fail to recognise the spectrum of risks ranging from genuine human error, through to orchestrated insider activity by paid professionals. Insider cases frequently involve individuals who have been with an organisation for some years and have had some personal vulnerability exploited or exposed, or simply become disgruntled.

It’s a broad area to address. Internal governance, security culture, employee wellbeing, employment measures, corporate digital footprint, and perceived employee sentiment are some of the aspects that should be considered. When you have understood this for your own organisation, you should make the same assessment of your supply chain.

If the business is committed, it’s possible to use structured analytical methods to quantify your organisation’s maturity and assess where the key vulnerabilities and risks could lie. This understanding paves the way for improvement, and even small changes can make a big difference.

 

The hidden layers

Like an onion, there are hidden layers to security that may be overlooked so it’s important to consider physical, cyber and personnel security collectively, and to understand the dependencies you have as a business.

For example, your own environment may be protected, but if data is shared with your suppliers or partners, is it still secure? Similarly, if a supplier or partner has a security breach, what does it mean for your operation, your business continuity and your customers?

When assessing security measures, it’s essential to go an extra layer deeper and consider how a range of factors could impact your organisation and its readiness to respond to an incident.

At MASS, our security experts consist of professionals with extensive experience in preventing security breaches and performing assessments in accordance with Ministry of Defence processes, so that we can ensure our security analysis meets and exceeds industry best practice.

For more information, please visit: https://www.mass.co.uk/what-we-do/cyber-security/cyber-security-training/

 

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Wealth Management

HOW TO CATCH UP ON YOUR RETIREMENT SAVINGS

By Gerard Visser, Certified Financial Planner at Alexander Forbes

For many South Africans who were already finding it difficult to save for retirement, Covid-19 has created additional financial pressures which may take years to overcome.

If you stopped contributions to your retirement annuity, or took a payment holiday on your pension or provident fund, you might be worried about the shortfall created, and how you’re going to catch up.

Stop worrying and take action to avoid retiring with insufficient funds. There are many ways to contribute to your retirement, from employer and employee contributions to pension or provident fund, monthly contributions to a Retirement Annuity or a tax free savings account.

With many people having a reduced income due to the economic ramifications of Covid-19, it might be impossible to contribute a large monthly amount to catch up while having concerns such as debt to pay, but I recommend starting with your budget. This will aid you not only by freeing up extra funds to catch up your retirement contributions with, but could also create some peace of mind with an opportunity to pay debts off faster or save some discretionary money.

Gerard Visser

There are many reasons why it is important to follow a monthly budget. Besides reducing stress levels by keeping an eye on your spending habits, it also allows you to track your debts, finding opportunities to top up emergency funds or save extra towards your retirement. A budget goes hand-in-hand with setting and achieving financial goals.

A budget does create an additional administrative burden and requires time to update. I have my budget on an Excel spreadsheet and update it monthly when making EFT payments.

Costs for entertainment, groceries and petrol are variable in nature and change each month. You might end up not using all the funds set aside for these variable costs. Adding these leftover funds at the end of the month to your savings is a good habit to inculcate. The immediate impact might seem small but over time will make a positive outcome to both your retirement and the development of a savings mind-set.

When you are able to free up some money each month, start automating your savings. Instead of having a variable amount go towards savings, set up an automatic contribution, where you “pay yourself first”. Set up an automatic debit for your retirement savings and you’ll grow these funds without having to think about it.

One of the most important decisions you can take to help make your retirement comfortable is preserving your retirement funds when changing employer.

When starting new employment or if you are coming out of a payment holiday, try matching your employer’s monthly contribution toward your pension or provident fund, or if on a total cost to company structure, start on the maximum employee contribution percentage. By doing this as well as automating your savings, you get use to contributing those amounts and could potentially have a larger nest egg at retirement.

Remember that life happens, and your budget might come under strain – many of us have experienced this during the pandemic. If you have been going through a difficult financial time, it is time to reassess and ask yourself, what in your budget is necessary and what is actually a luxury?

It is never too late to start sorting out your finances, but the earlier you start, the better, and more achievable, the outcome will be.

 

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