The Risk Landscape in the Digital Transformation of Finance and Insurance

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (1 May 2023) | Viewed by 34681

Special Issue Editors

1. Faculty of Business, Management and Economics, University of Latvia, LV-1586 Riga, Latvia
2. Faculty of Economics, Management and Accounting, University of Malta, MSD 2080 Msida, Malta
3. Faculty of Economics, Catholic University of the Sacred Heart, 20122 Milan, Italy
Interests: InsurTech; insurance law and regulations; financial services
Special Issues, Collections and Topics in MDPI journals

Special Issue Information

Dear Colleagues,

Artificial intelligence (AI), blockchains (B), cloud computing (C), big data (D), and the Internet of Things (I) are considered to be the ABCDIs of emerging technologies that are transforming the financial services landscape around the world. ABCDIs and the COVID-19 pandemic sparked the current digital transformation, resulting in substantial changes in the structure of products and services provided by the financial sector. A change has taken place in the way financial services are provided and consumed, as well as who provides these services. As financial solutions become more integrated into the lives of consumers, consumers can take advantage of seamless transaction experiences and access financial services anywhere and anytime.

The financial services landscape is undergoing a major transformation in terms of the types of players involved, how money is used and provided, and the role that finance plays in relation to the natural environment, which is increasingly impacted by innovation in business models, technology, and environmental initiatives.  Institutional investors are weighing climate change risks into the financing decisions they make, while consumers are increasingly aware of the impact of their decisions on the environment and other social factors and expect corporations to reflect their concerns.

However, using modern equipment and software is only one aspect of digital transformation in finance and insurance, as it also involves reviewing the management methods, communications, and organizational culture.  The understanding of risk areas is key to identifying and managing all of the risks a company may encounter within the digital environment. For companies to fully exploit the digital transformation, they must also manage the risks introduced into the environment and manage their impact on the existing ecosystem to drive optimum value from their digital initiatives.

In this new financial landscape, there are both opportunities and challenges for new and existing players as a result of the entry of new players, the arrival of digital financial services, and the greening of finance. Despite the ever-changing financial landscape, the purpose of finance remains the same: to provide for the needs of consumers, businesses and society while improving people's lives.

We welcome papers related but not limited to the following topics:

  • Technology Risk;
  • Strategic Risk;
  • Cyber Risk and cyber security;
  • Third-party Risk;
  • Competitive Risk;
  • Distribution Risk;
  • Data Risk;
  • Underwriting Risk;
  • Discrimination Risk;
  • Talent and Culture Risk;
  • Artificial intelligence Risk;
  • Privacy Risk;
  • Reputation Risk

Prof. Dr. Ramona Rupeika-Apoga
Prof. Dr. Pierpaolo Marano
Guest Editors

Manuscript Submission Information

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Keywords

  • digital transformation
  • digitalisation
  • FinTech
  • InsurTech
  • digital risks
  • cyber risks
  • risk management

Published Papers (9 papers)

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Editorial

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2 pages, 260 KiB  
Editorial
The Risk Landscape in the Digital Transformation of Finance and Insurance
Risks 2023, 11(7), 129; https://doi.org/10.3390/risks11070129 - 12 Jul 2023
Viewed by 888
Abstract
“The Risk Landscape in the Digital Transformation of Finance and Insurance” is a Special Issue that explores the opportunities and challenges arising from the integration of emerging technologies in the finance and insurance sectors [...] Full article

Research

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22 pages, 1649 KiB  
Article
Designing Stress Tests for UK Fast-Growing Firms and Fintech
Risks 2023, 11(2), 31; https://doi.org/10.3390/risks11020031 - 31 Jan 2023
Cited by 2 | Viewed by 1997
Abstract
This paper captures advances in prudential regulation and supervision for challenger banks and fintech in the UK. It presents a critical analysis of the prudential supervisory approaches towards fintech. The focus is placed on fast-growing firms (FGFs), building on the review performed by [...] Read more.
This paper captures advances in prudential regulation and supervision for challenger banks and fintech in the UK. It presents a critical analysis of the prudential supervisory approaches towards fintech. The focus is placed on fast-growing firms (FGFs), building on the review performed by the Prudential Regulation Authority (PRA) of the Bank of England (BoE) in 2019. Specifically, it comprises a critical examination of the underlying regulatory framework in relation to the robustness of stress testing practices, as part of the review of FGF risk management practices and the weakness identified in the Internal Capital Adequacy Assessment Process (ICAAP). The economic analysis of law comprises the underlying methodology, using economic theory to analyse regulation and its effectiveness regarding fintech regulation and supervision. Recommendations for enhancements towards supervisory practices about the prudential governance and management of FGFs and fintech are included, with advances to the underlying regulatory framework in the UK. Overall, this critical legal research examines the supervisory practices of FGFs and fintech in the UK, under the lens of prudential regulation and risk management approaches, focusing on the design, development and implementation of the stress testing tool and scenario practices. Full article
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13 pages, 347 KiB  
Article
Regulating Robo-Advisors in Insurance Distribution: Lessons from the Insurance Distribution Directive and the AI Act
Risks 2023, 11(1), 12; https://doi.org/10.3390/risks11010012 - 04 Jan 2023
Cited by 4 | Viewed by 2129
Abstract
Insurance distributors are increasingly using robo-advisors for a variety of tasks, ranging from facilitating communication with customers to providing substantive advice. Like many other AI-empowered applications, robo-advisors have the potential to pose substantial risks that should be regulated and corrected by legal instruments. [...] Read more.
Insurance distributors are increasingly using robo-advisors for a variety of tasks, ranging from facilitating communication with customers to providing substantive advice. Like many other AI-empowered applications, robo-advisors have the potential to pose substantial risks that should be regulated and corrected by legal instruments. In this article, we attempt to discuss the regulation of robo-advisors from the perspective of the Insurance Distribution Directive and the draft AI Act. We ask two questions for each. (1) From a positive legal perspective, what obligations are imposed on insurance distributors by the legislation when they deploy robo-advisors in their business? (2) From a normative perspective, are the incumbent provisions within that legislation effective at ensuring the ethical and responsible use of robo-advisors? Our results show that neither the Insurance Distribution Directive nor the AI Act adequately address the emerging risks associated with robo-advisors. The rules implicated by them regarding the use of robo-advisors for insurance distribution are inconsistent, disproportionate, and implicit. Legislators shall further address these issues, and authorities such as EIOPA and national competent authorities must also participate by providing concrete guidelines. Full article
15 pages, 2900 KiB  
Article
An Empirical Analysis for the Determination of Risk Factors of Work-Related Accidents in the Maritime Transportation Sector
Risks 2022, 10(12), 231; https://doi.org/10.3390/risks10120231 - 05 Dec 2022
Cited by 3 | Viewed by 1359
Abstract
The main objective of this study is to highlight the internal risk factors associated with maritime transportation accidents and the important role of presenting them in the dataset at the time of the incident. Since the study period involves a pre- and post-pandemic [...] Read more.
The main objective of this study is to highlight the internal risk factors associated with maritime transportation accidents and the important role of presenting them in the dataset at the time of the incident. Since the study period involves a pre- and post-pandemic timeline, we refer to COVID-19, although it is not part of our analysis. The issue at hand is the appropriate statistical analysis and investigation of the possible correlations between the cause of the incident and internal factors/indicators that may affect the safety of crews on sea routes. We developed a comprehensive study based on advanced econometric modeling, utilizing multifactorial models of robust regression, structural equation modeling (SEM), and Gaussian/mixed-Markov graphical models (GGMs, MGMs) and applying them to a newly compiled dataset covering the 2014–2022 period. Our results bring to the fore important factors that can determine the causes of various accidents and injuries suffered by workers, ranging from work location to work activity and even the rank of the seafarers on board. We do not consider the external factors associated with a maritime transportation accident, as the risk of an accident in this sector due to external factors (i.e., weather conditions, defaults, failures, etc.) is limited. Reducing the number of injuries to seafarers will result not only in better seafarer health but also a reduction in the operating costs of shipping companies due to the reduced insurance premiums they will have to pay. It will also lead to a reduction in the amounts disbursed by Protection and Indemnity (P&I) Clubs to compensate seafarers. In future research, we will use external factors to determine seafaring risks related to, for example, weather conditions, the quality of ships, technology, safety measures, regulations, and more. Full article
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16 pages, 1835 KiB  
Article
The Dynamic Connectedness between Risk and Return in the Fintech Market of India: Evidence Using the GARCH-M Approach
Risks 2022, 10(11), 209; https://doi.org/10.3390/risks10110209 - 03 Nov 2022
Cited by 57 | Viewed by 2913
Abstract
Fintech allows investors to explore previously unavailable investment opportunities; it provides new return opportunities while also introducing new risks. The aim of this study is to investigate the relationship between risk and return in the fintech industry in the Indian stock market. This [...] Read more.
Fintech allows investors to explore previously unavailable investment opportunities; it provides new return opportunities while also introducing new risks. The aim of this study is to investigate the relationship between risk and return in the fintech industry in the Indian stock market. This article is based on market-based research that focuses on demonstrating the volatility in the fintech market’s prices and demystifying the opportunities. Secondary data were collected from the Bombay Stock Exchange’s official fintech industry website from January 2017 to July 2022 to determine whether there is any dynamic link between risk and return in the Indian fintech market. The variance-based Mean-GARCH (GARCH-M) model was used to determine whether there is a dynamic link between risk and return in the Indian fintech market. The findings emphasize the importance of taking the risk of investing in India’s fintech industry. The implications for stock investors’ and fund managers’ portfolio composition and holding periods of equities or market exposure are significant. Finally, depending on their investment horizons, the Indian fintech industry may yield significant profits for risk-taking individuals. Full article
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13 pages, 1293 KiB  
Article
FinTech Development and Regulatory Scrutiny: A Contradiction? The Case of Latvia
Risks 2022, 10(9), 167; https://doi.org/10.3390/risks10090167 - 23 Aug 2022
Cited by 10 | Viewed by 2935
Abstract
The purpose of this study is to examine whether FinTech companies believe that the growing dependence on regulation represents a potential risk for their development. In 2021, we conducted a survey among Latvian FinTech companies to ascertain their attitude toward regulatory scrutiny. We [...] Read more.
The purpose of this study is to examine whether FinTech companies believe that the growing dependence on regulation represents a potential risk for their development. In 2021, we conducted a survey among Latvian FinTech companies to ascertain their attitude toward regulatory scrutiny. We received 31 responses, representing a 33% response rate. The responses show that regulation is still one of the most pressing issues for FinTech companies, even though it is not necessarily regulation per se that causes concerns, but the lack of a regulatory framework that would be suitable for the special situation of the FinTech sector. However, regulation is now regarded as less problematic than it was in a previous survey in 2019, when respondents saw regulation as the most pressing issue. Moreover, the FinTech industry anticipates better support from the regulator, such as more realistic sandbox approaches and a willingness to consider new business models. According to the survey responses, the UK, Estonian, and Lithuanian regulators can serve as inspiration in this regard. Latvian FinTech companies expect regulators to be more flexible and open in their communication. This study is intended to advance regulatory reform by aiding the understanding of the requirements of fast-evolving FinTech companies. Full article
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Review

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15 pages, 2091 KiB  
Review
A Systematic Literature Review of the Risk Landscape in Fintech
Risks 2023, 11(2), 36; https://doi.org/10.3390/risks11020036 - 08 Feb 2023
Cited by 5 | Viewed by 4404
Abstract
The current study is primarily concerned with the developments in financial technology, or fintech, that have significantly altered traditional financial systems, focusing on several risk categories that have emerged in the financial technology sector’s digital ecosystem. This paper is a review of existing [...] Read more.
The current study is primarily concerned with the developments in financial technology, or fintech, that have significantly altered traditional financial systems, focusing on several risk categories that have emerged in the financial technology sector’s digital ecosystem. This paper is a review of existing literature related to the risk landscape in fintech, particularly its publication trend, journal productivity, impact, affiliated organizations, and related themes. A bibliometric and content analysis of 84 articles collected through Scopus’ structured database is performed for a comprehensive review. It is revealed that financial technology development has decreased physical crime while simultaneously increasing cybercrime. Another challenge is the asymmetrical technology between financial markets and the relevant supervisors. These current issues necessitate the creation of an Act on Fintech to create a comprehensive legislative framework. The present study’s findings are helpful for academia and industry to aid their existing knowledge about fintech and associated risks, particularly its timeline, geographical spread, and development of coherent themes. Full article
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17 pages, 3043 KiB  
Review
Customer Due Diligence in the FinTech Era: A Bibliometric Analysis
Risks 2023, 11(1), 11; https://doi.org/10.3390/risks11010011 - 03 Jan 2023
Cited by 6 | Viewed by 2439
Abstract
This study examined the current developments in customer due diligence (CDD) in the financial technology (FinTech) era. The study of anti-money laundering (AML) and combating financing of terrorism (CFT) gained prominence after the 2007–2009 global financial crisis (GFC), in which administrative penalties were [...] Read more.
This study examined the current developments in customer due diligence (CDD) in the financial technology (FinTech) era. The study of anti-money laundering (AML) and combating financing of terrorism (CFT) gained prominence after the 2007–2009 global financial crisis (GFC), in which administrative penalties were issued to financial institutions. Faced with AML regulatory compliance issues, technological solutions were or are still being developed. Thus, several technological innovation developments have shaped the future direction of the CDD aspects in the AML/CFT sphere. A bibliometric review and meta-analysis was employed for the study. The Scopus database was utilised to generate the dataset for the study, while SciVal was applied for research metric analysis. The major findings revealed that the key research themes in this area include anti-money laundering, banks and crime, and cryptocurrency, as well as blockchain and corruption. It was also established that most of the research done in this area is focused on the United Kingdom, the United States, and China. The integration of CDD with FinTech is still an emerging area that requires interdisciplinary collaborations. Full article
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17 pages, 596 KiB  
Review
Thematic Analysis of Financial Technology (Fintech) Influence on the Banking Industry
Risks 2022, 10(10), 186; https://doi.org/10.3390/risks10100186 - 20 Sep 2022
Cited by 31 | Viewed by 14004
Abstract
The synthesis of technology and finance is known as financial technology (Fintech), which brings together two of the biggest industries in harmony. Fintech disruption is a deviation from the norm, resulting in a significant shift in banking services and, as a result, risk. [...] Read more.
The synthesis of technology and finance is known as financial technology (Fintech), which brings together two of the biggest industries in harmony. Fintech disruption is a deviation from the norm, resulting in a significant shift in banking services and, as a result, risk. This article aims to investigate how Fintech has influenced recent changes in the banking industry and upcoming challenges, with a particular emphasis on blockchain technology. We perform a comprehensive thematic analysis of recent studies on Fintech in the banking industry. We found that Fintech has enormous potential to grow and impact the banking industry and the entire world. The banking industry could benefit from combining emerging technologies such as blockchain, AI, machine learning, or other decision-making layers. However, with the benefits come drawbacks, such as increased reliance on technology, high costs, increased job losses, security risks related to data and fraud, and so on. The use of emerging technology and collaboration between Fintech firms and banks can improve system-wide financial stability while minimising the negative externalities of disruption and competition. These findings can help regulators, policymakers, academics, and practitioners understand the opportunities and challenges of emerging technologies in the banking industry. Full article
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