Difference between revisions of "Fintech Risk Events"

From Open Risk Manual
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== Legend ==
 
== Legend ==
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=== Entity ===
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An (informal) identification of the entity involved
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=== Category ===
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The subsector of the fintech industry in which the entity is operating
  
 
=== Publication Date ===
 
=== Publication Date ===

Revision as of 16:10, 14 January 2020

Purpose

Fintech Risk Events is an open catalog of observed (publicized) operational failures (Risk Event) of fintech business models (excluding cryptocurrency). The catalog aims to document (in due course) such events reasonably accurately to allow risk managers understand the (potentially new) vulnerabilities of new financial services models.

List of Events

Fintech Risk Events
1. Entity 2. Publication Date 3. Country 4. Category 5. Event Description 6. Event Type 7. Loss Amount 8. Links
Clinkle Jan 2014 US Payments API Security Breach EF N/A Techcrunch
Wonga April - Oct 2014 UK Payday Loans Bad Debt Collection Practices, Debt writeoffs CPBP ~240mln Pounds Wikipedia
TrustBuddy Aug 2015 Sweden P2P Lending Misuse of client funds, Bankruptcy IF N/A FT, Telegraph
Prosper Dec 2015 US P2P Lending Enabling financing to suspected terrorist CPBP N/A LAT
Powa Technologies Feb 2016 UK POS, Payments Bankruptcy Business Failure N/A Wikipedia
Ezubao Feb 2016 China P2P Lending Fake investment products to one million retail investors CPBP $7.6bln NYT
Dwolla Mar 2016 US Payments Poor Consumer Data Protection Practices CPBP $100k WSJ
LendingClub May 2016 US P2P Lending Altering Loan Information IF,CPBP N/A Wikipedia
LendUp September 2016 US Payday Loans Misleading borrowers about pricing, failing to report credit information CPBP $6.4 million in fines WSJ
Wonga April 2016 UK Payday Loans Client Data Breach EF N/A BBC
Prosper May 2017 US P2P Lending Overstating Returns BE N/A Bloomberg
Revolut Jul 2018 UK Payments Suspected Money Laundering IF N/A Reuters
Wirecard Jan 2018 DE, SG Payments Accounting Irregularities IF N/A Deutsche Welle
Monzo Aug 2019 UK Digital Bank Potential Security Breach (Unencrypted PIN's) BE N/A Guardian
Chime Oct 2019 US Digital Bank Service Outage BE N/A CNBC
Chinese P2P Lenders 2018 - Oct 2019 China P2P Lending Sector-wide crackdown IF, CPBP, Bankruptcies N/A Bloomberg,

FT

Robinhood Nov 2019 US Electronic Trading Software Glitch enabled clients with unlimited leverage BE N/A Bloomberg
Apple/Goldman Sachs Nov 2019 US Credit Cards Algorithmic Bias CPBP N/A BBC

Legend

Entity

An (informal) identification of the entity involved

Category

The subsector of the fintech industry in which the entity is operating

Publication Date

A rough indication (+/- Month of the Year) of when the risk event has become more widely known

Event Description

A brief narrative of the main aspects of the event, ideally with links to corresponding explanatory entries of the underlying risk mechanisms

Country

The Country where the company is incorporate and / or where the risk event materialized

Loss Amount

A monetary amount as an indicator of the scale of the event

Links

Links to reputable and permanent URL's where the event is discussed.

Event Type

Given the close relation of Fintech to the financial industry it is instructive to attempt to classify events according to the globally recognized bank regulatory framework (Basel II) as listed below:

  • Internal Fraud - misappropriation of assets, tax evasion, intentional mismarking of positions, bribery
  • External Fraud - theft of information, hacking damage, third-party theft and forgery
  • Employment Practices - discrimination, workers compensation, employee health and safety
  • Legal Risk - Clients, Products, and Business Practice - market manipulation, antitrust, improper trade, product defects, fiduciary breaches, account churning
  • Physical Damage - Damage to Physical Assets - natural disasters, terrorism, vandalism
  • Business Disruption and Systems Failures - utility disruptions, software failures, hardware failures
  • Business Execution, Delivery, and Process Management - data entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets

NB: This classification of Fintech Risk Events may be tenuous for some instances, given the novelty of business models.

Business Failure Events

The Basel classification scheme does not include total business failure (that is, events of administration, bankruptcy etc) as an operational risk event. This is because the operational risk framework is primarily meant to help manage / mitigate operational risks, whereas Bankruptcy is the final outcome when all management efforts have failed.

We currently do include fintech business failures as a category, as they are informative for risk management purposes. A threshold of total funding raised will be applied (to differentiate bankruptcies from the much more common business model failures of early stage startups). On the other hand, failure of a new business model to flourish (resulting e.g. in an orderly sale to third party), while possibly informative about risk factors associated with the adopted business model, can not be cleanly separated from more traditional risk management categories and is not included.

Criteria for inclusion

Risk Event Eligibility

There should be adequate, independent, confirmed and public information about the event, with authoritative, permanent urls.

Materiality Threshold

At present there is no explicit materiality threshold

Company Scope

Fintech companies, i.e. newly established financial services providers that operate primarily or exclusively via new (digital) platforms and may be unregulated, as distinct from established financial services firms that operate with a mix of older technology platforms and are (mostly) regulated. Indicatively, the crisis period of 2008-2009 is the cutoff date for newly established entities.

As established firms adopt "fintech" models the list will aim to include any operational risk events associated with these platforms (to the extend that this can be clearly identified in published information). Out of scope are risk events captured under other risk categories such as unexpected credit losses (credit risk) or market losses (market risk), although sometimes it is difficult to cleanly classify an event.

General purpose digital marketplaces (e-commerce) are not in scope.

Crowdfunding

There are various reports (and reporting sites) about crowdfunding scams. While the proliferation of such events can potentially tarnish the reputation of crowdfunding platforms, to date there appears to be no event that would qualify

See Also

Contributors to this article

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