Initial coin offerings (ICOs) loom as one of the most dangerous financial services fads in 2018, a global survey of industry leaders has found.
The survey of 30 fintech top guns – from organisations including Ant Financial, Citi, Ripple, Santander, Western Union, Starling Bank and Visa – found over half thought ICOs “represent more risk than opportunity and regulators need to step in before disaster strikes”.
However, almost 40 per cent of the global panel of experts convened by UK communications firm FleishmanHillard Fishburn (FHF) said ICOs – which raise real funds via crypto-currency offers – were a “fantastic alternative option”.
Paolo Galvani, founder of UK/Italian digital wealth manager Moneyfarm, says in the report that many ICO investors “don’t understand what they’re buying”.
“The bubble could pop at any time and investors could lose a large chunk of their money in a moment,” Galvani says in the report. “It’s time for financial regulators to stand up and do something to improve the quality of these ICOs and protect the consumer.”
Late last year the Financial Market Authority (FMA) issued guidance on ICOs and crypto-currencies for NZ investors, concluding most would fall under its purview.
According to the FHF study, over 100 ICOs raised more than US$1.2 billion during the first three-quarters of 2017.
While NZ lags the global trend, start-up Auckland firm Sell My Good abandoned its ICO in December last year following a knock on the door from the FMA.
“We were not able to assess their ICO prior to the tokens going on sale, but believed it should be classed as a financial product and therefore, fall within our regulatory remit,” the regulator says in its latest Conduct Outcomes Report.
As well as ICOs, the FHF survey cites bitcoin, the fintech overthrow of banks, and artificial intelligence (AI) as the most over-hyped items on the financial services agenda.
AI, though, also made FHF ‘future’ list: the study categorised fintech trends as ‘fad, fear or future’.
“Fad or not, 97% of our experts believe that AI will eventually replace some jobs in Financial Services in some form,” the report says. “56% believe this will happen in five years or less.”
Respondents said their biggest fears include: the “bursting of the fintech bubble”; hacking; and, increased regulation.
Open banking, which went live in the UK in January, ranked as the most imminent fintech reality with about 90 per cent of respondents expecting it to have an impact in 2018. About half of those surveyed said AI/machine learning, ‘regtech’, and blockchain would also come into play this year. Less than 40 per cent said biometrics and crypto-currencies would be important this year while the ‘internet of things’ and wearable tech scored under 10 per cent.
In the report, Claudia Bate, FHF head of financial services, says the “experts recognise that there is a fine line between being excited about the future of finance and its potential, and over-hyping”.
“Clients of Financial Services too, whether consumers or other businesses, are increasingly able to see through overly exaggerated claims and are crying out for rhetoric based in realism,” Bate says.