Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Cyber Security, Quantum, Hacks, Fraud Alerts, Risks, InsurTech
Can Cloned Voices Crack Bank Security? Need to Know
AI | Nov 28, 2024
Image: Freepik
AI Voice Cloning Exposes Weakness in Bank Security Systems
Well there's not a day that goes by that artificial intelligence (AI) doesn't amaze while also inflicting fear. AI's latest milestone is unsettling, as its been proven that it can clone human voices so convincingly that even bank's advanced security systems can be tricked. This article is based on an investigative piece by Shari Vahl at the BBC who proved that a clone of her voice breached two major bank's voice ID systems. The security and fraud implications raise the frightening truth that current authentication protections are not good enough in the era of generative AI.
What Happened?
Today, voice cloning believe it or not is pretty straightforward. There are a growing number of voice cloning services that varying features and capabilities such as ElevenLabs, Resemble AI, and Respeecher. Descript compares a few of the pros and cons of the best AI voice cloning tools here.
See: Generative AI and Major Human Rights Fintech Risks
So Vahl cloned her voice and tested it on the 'voice ID' systems of Santander and Halifax banks. Both systems use a simple phase to authenticate voice ID, "my voice is my password' and grant full access to bank accounts and tools. Here's how the conversation went.
Image: Shari Vahl Voice ID authentication with Voice Clone at Santander bank
See: How GenAI Is Transforming Risk and Compliance in Banking
Yes, as you see from the conversation above, using her cloned voice she successfully passed Voice ID and logged into her account, using basic speaker equipment at home. She duplicated the same process at Halifax Bank with the same result so she was two for two in hacking into her own bank account with a cloned voice ID.
Many companies such as Rogers say that Voice ID or Voice biometrics is more secure than traditional PINs or passwords but if a cybercriminal can easily pass (or by-pass) a voice ID system using a cloned voice easily, to access sensitive information or drain bank accounts, we've got a serious problem.
How Are the Banks Responding?
Santander and Halifax both defended their systems saying that voice ID is just one layer of their security framework. Here's how they responded according to the BBC article.
Halifax Bank response:
"[Voice ID is an] optional security measure. We are confident that it offers a higher level of security compared to traditional knowledge-based authentication methods, and that our layered approach to security and fraud prevention provides the right level of protection for customers' accounts, while still making them easy to access when needed."
See: Meta Files New Patent: Voice ID Data for User Authentication…Progress or Privacy Concern?
Santander Bank response:
"We have not seen any fraud as a result of the use of voice ID and are confident that it provides greater levels of security than traditional knowledge-based authentication methods. [Voice ID] is one element of our stringent approach to customer security and fraud prevention, with a range of comprehensive checks based on the nature of the customer's request. We constantly review, test and enhance our systems in response to increasingly sophisticated tactics used by fraudsters."
What Can Be Done?
- Banks and businesses should add extra layers of security like combining voice ID with fingerprints or a trusted device before providing access to make accounts safer.
- Use AI tools to catch itself. AI can be trained to catch cloned voices (much better than humans can) to help combat the wrongly use of this technology.
- Education and awareness. Customers need to know how scammers can use AI against them so they can proactively protect themselves. Awareness is a big step in avoiding fraud. Banks should advise customers on what they’re doing to protect against scams using AI.
- Governments, banks, and regulators should work together to create guidelines for safe use of AI powered voice tech and invest in top notch tools to catch fraud early.
Wake Up Call
Banks, government, regulators, businesses, and customers all need to wake-up and take the appropriate actions to protect themselves.
See: Major Data Breach @Finastra and Canadian Banks?
While AI is a marvel technology, it's creating new risks that demand smarter protections for all. Similar to the old saying "buyer beware", we now live in an age of "user beware." Stay informed. Stay safe.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Meme Coin Chaos and Wild West of Viral Tokens
Crypto | Nov 26, 2024
Image: Jut a chill guy, Phillips Banks
Meme Coins, Lawsuits, and the Intersection of Tech, Culture & Finance?
Imagine logging onto social media and seeing your favourite viral meme like a cute pet or a celebrity's name turned into a cryptocurrency. At first it might feel like a quirky corner of internet culture but beneath the surface of the world of meme coins is arguably a ticking ticking time bomb with a growing number of legal disputes, ethical dramas, and financial volatility. Welcome to the latest iteration of the wild west of crypto.
What Are Meme Coins, Anyway?
Meme coins are cryptocurrencies that draw their identity from internet jokes or cultural references. Perhaps the most famous meme coin is 'Dogecoin'. What started off as a joke ended up making headlines with soaring market caps and high profile endorsements like Elon Musk. Meme coins thrive on social media hype but their value is driven by speculation rather than solid fundamentals. While that may be part of the fun, it's also where things go wobbly.
When Meme Coins Turn Into Legal Battles and Creators Fight Back
For example, an explosive meme coin called PNUT inspired by Peanut the squirrel (500,000 social media followers) who lived at Mark Longo's animal sanctuary in New York with Fred the raccoon. On Oct 30, state officials raided Longo's home and euthanized both animals due to laws against keeping wildlife as pets. The tragic death went viral and captured global attention during the U.S. presidential election with Elon Musk saying it was 'messed up' and DJ Vance citing 'government overreach'. Well Peanut's owner Mark Longo became furious when he found out that the crypto community had minted a coin based on his pet’s story. He called it exploitation and he fired back by launching his own token, "Justice for Pnut and Fred" and threatened a lawsuit.
See: Lena Dunham’s SBF Film & Finance Pop Culture
In another example, Caitlyn Jenner, an American TV personality and retired Olympic gold medalist launched her own JENNER meme coin and promoted it but it landed her in legal trouble. Investors claimed her endorsement led to massive losses and that the coin was an unregistered security. Sad outcome considering what looked like a quick way to cash in on her celebrity status eventually turned into a courtroom drama.
And then there is the artist behind the viral 'Chill Guy' meme, Phillip Banks, was pissed that his work was used in multiple meme coin projects without his permission. As a result, he's pursuing legal action to reclaim control over his intellectual property which is a good reminder that behind the hype and humour, creators and artists are getting taken advantage of and bearing the brunt of exploitation.
Phillip Banks:
“Chill guy has been copyrighted. Like, legally. I'll be issuing takedowns on for-profit-related things over the next few days.”
Why the Legal Storm?
See: Report Insights: DIY Investors in Canada on the Rise
While meme coins are all the rage because of their ability to capture cultural excitement, their value relies on viral buzz rather than actual utility or tech advancements. So meme coins are like a moth to a flame and their massive rise in popularity has created a perfect storm of legal challenges:
- Meme coins often use viral content without asking permission from the creators. This is intellectual property theft.
- Some meme coins are just 'scams and hype tricks' to get people to buy in, only for their value to crash later or a live rug pull, leaving investors with big losses.
- Authorities like the SEC are cracking down on meme coins that act like unregistered investments.
Closing Thoughts
Meme coin tokens are changing the way we think about value, culture, and technology but they shine a light on the cracks and darker corners of crypto where there's an obvious need for better safeguards, clearer regulations, ethics and accountability, and more informed investing.
See: U.S. Bets Big On Crypto and What It Means for Canada
They are a magnet for both innovation and controversy. Some meme coins will mature into legitimate assets but most will be the digital Wild West of crypto. Stay safe and be aware.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Trump’s Tariffs: Impact on Fintech and Canada’s Digital Tax
Taxes | Nov 26, 2024
AI Image
Could Cross-border Tax Friction Spill Over Into Digital Services and Fintech?
Yesterday, President-elect Donald Trump announced a 25% tariff to be applied to all of Canada's imports into the U.S., sparking plenty of debate. So far the focus is largely on physical goods like lumber, fuel, aluminum, dairy and food products, and things like cars. But what about fintech services, and more specifically Canada's new Digital Services Tax (DST)? Could they be somehow ensnared with this new tax friction which has already ruffled feathers in Washington (and could become another discussion point for a broader trade dispute?
What’s Going On With Trump’s Tariffs?
During Trump's campaign for re-election into office, he must have mentioned tariffs a thousand times or more. He talked about applying tariffs to every country that he thought had an unfair trading relationship with America including Canada. The Canada and Trump Risk Index ranks Canada in third place behind only Mexico and China in terms of which countries are at the greatest risk of a trade policy change. As of Aug 2024, Canada reported a trade surplus with the U.S. of about $11.5 billion CAD which is the difference between how much Canada exports to the U.S. ($43.7 billion CAD) versus imports from the U.S. ($32.3 billion CAD).
See: Who Will Canada’s New 3% Digital Services Tax Impact?
Trump's tariff trade policy on imports hopes to push countries like Canada to the negotiating table by making their exports to the U.S. more expensive for American consumer buyers driving down demand. When Trump announced a 25% tariff on all Canadian imported goods, he also mentioned the flow of illegal drugs and people coming from Canada into the U.S.. Prior to that, we also all know that Trump is angry that Canada has not followed-up on its commitment to spend 2% of GDP on defence per it's NATO member agreement. So in Trump's mind, cross-border trade needs a new deal with all countries including Canada.
Canada’s Digital Services Tax Complicates
Canada is now rolling out a unilateral 3% DST aimed at large tech companies like google, Amazon, and Facebook who generate more than $20 million CAD in revenue in Canada. The goal is to make these tech giants pay their fair share of taxes and is quite a shift in Canada's approach to taxing digital economies, and has caused a lot of controversy in Canada and aboard.
Not everyone agrees. The U.S. government sees the DST as unfairly targeting American companies. Earlier this year, the U.S. made a formal complaint under the USMCA trade agreement. If those talks fail, the U.S. could retaliate with their own tax which could get tricky for some larger Canadian fintech companies.
Could Fintech Get Caught in the Crossfire?
On the surface it seems fintech is safe given that DST is aimed at tech giants and tariffs traditionally focus on physical goods. But trade disputes have a weird way of escalating and if Trump decides to take a stronger stance on Canadian digital tax policies, fintech firms operating in the U.S. could feel the heat.
See: Canada’s Rising Tax Burden and Fintech Opportunities
Take Nuvei for example, a Montreal payment tech company that processes transactions for U.S. businesses. Nuvei reported a total revenue of $357.6 million in the third quarter of 2024 (17% increase year over year). While the U.S. revenue figures aren't specifically disclosed, Nuvei has significant operations and client base down South, suggesting that its revenue from U.S. markets would likely exceed $20 million annually. Or take Wealthsimple who recently expanded into the U.S. and services clients investment tools through its digital platform.
Both companies rely on trouble free cross-border operations to thrive. If the U.S. (or Canada) introduces new restrictions or taxes on digital services, it could make operating harder and more expensive.
Why It Matters
Being a neighbour to one of the most lucrative markets in the world has been a big part of Canada's success. But trade tensions can rise and fintech companies need to keep a close watch on trade developments (i.e., tariffs, DST etc) between the U.S. and Canada, and be prepared for new challenges and opportunities that may arise.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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The Day the Platform Went Dark. A Cyber Resilience Story
Cyber Insurance | Nov 25, 2024
AI Image
How Cyber Insurance Helped SparkFin Survive and Bounce From a Devastating Cyberattack
Sofia and Liam were co-founders of SparkFin a scaling fintech startup that promised a P2P lending experience with just a few taps on a smartphone. Their platform was getting backed and changing personal finance. The buzz was electric. Performance numbers were soaring and investors were reaching out like never before.
See: Major Data Breach @Finastra and Canadian Banks?
Then one Friday afternoon, everything changed. It begin with an urgent alert from the head of security,
“We’ve detected unusual activity on the platform. User accounts are being accessed without permission.”
Then moments later, social media lit up. Customers were angry and anxious. Funds were drained from their accounts.
Liam froze. Sofia grabbed her phone. This is it. A cyberattack.
The Cyber Insurance Lifeline
Fortunately, SparkFin had taken steps to prepare for this kind of scenario just a few months earlier. Their board had insisted on a robust cyber insurance policy. Liam at the time was hesitant thinking "Is this just another expense for something that might never happen?” but Sofia was more realistic and saw their business as a huge risk that needed protection. "If we’re handling people’s money, we have to be covered," she argued.
See: New Cyber Threats Financial Service Firms Need to Know
That moment was a lifesaver. Sofia contacted their insurance provider’s 24/7 breach response team. Before they knew it, an incident coordinator was on the line and a response plan was set in motion.
Taking Action
The first priority was to contain the breach. SparkFin’s IT team worked alongside cybersecurity specialists provided by the insurance policy. They immediately shut down vulnerable access points and began investigating the attack’s origins. The insurance policy covered the cost of hiring forensic experts to trace the hackers and assess the damage.
Next came damage control. The cyber insurance policy included funds to notify affected users quickly and offering them fraud protection services and covering any direct financial losses from the breach. A public relations specialist was also covered by the cyber insurance who expertly crafted messaging to assure customers their money would be safe.
See: FSB’s Warnings of Hidden Stakes of AI in Finance
When regulators stepped in with demands for answers, SparkFin was ready. The insurance policy included coverage for legal fees and compliance experts to handle the high volume of inbound inquiries that demanded a response. This support was critical to staying on top of the complex regulatory landscape SparkFin operated in.
What Wasn’t Covered
Even though the policy was a lifeline, it wasn’t a silver bullet. The breach knocked user confidence down significantly which led to fewer new signups and investors also started to back off. SparkFin’s policy didn’t cover the lost revenue due to the breach nor did it cover the cost of upgrading their technical infrastructure after the attack to ensure it wouldn’t happen again.
Sofia and Liam also realized they needed to explore extra coverage like reputational harm coverage and funding for proactive security upgrades. "If we’re going to be trusted with people’s finances, we need to make sure we’re protected from all sides," Sofia said.
Learning and Building Resilience
Once the crisis was under control, the insurance provider offered a post-incident review which revealed weaknesses in their system. Liam worked with cybersecurity experts to implement stricter authentication measures and establish regular testing protocols.
See: How To Protect Your Data As An Entrepreneur: Essential Practices and Solutions
Sofia held employee training sessions to help reduce human error and ensure the entire team understood how to spot phishing scams and other top cyber threats. They also updated their cyber insurance policy by adding coverage for social engineering attacks which was one of the vulnerabilities the hackers had exploited.
A Stronger, Smarter Fintech
Sofia and Liam eventually recovered from the cyberattack and built a stronger and more experienced and resilient SparkFin. Their users returned given SparkFin's transparency and swift response. They were impressed by their handling of the crisis, boosting their confidence in the company.
“Cyber insurance isn’t just a safety net but rather a test of resilience. It didn’t just help us recover but it helped us build back a stronger and more prepared company, proving to our customers and investors that we’re here for the long haul.”
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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New Cyber Threats Financial Service Firms Need to Know
Cybersecurity | Nov 21, 2024
Image: 2023-2024 Annual Cyber Threat Report (ASD)
Cybersecurity for Fintech Firms is No Longer Optional. What You Need to Know Heading Into 2025
We all knew it was coming but it's finally arrived. Cyber threats, cybersecurity, cyber attacks, scams, deepfakes, risks, rugpulls, ransomeware, social engineering, phishing etc are now considered a business critical priority. Particularly financial service firms who interact with and manage high value and sensitive transactional data. The Australian Signals Directorate recently published its annual 2023-2024 Cyber Threat Report (78 page PDF report) with insights into the evolving cyber threat landscape - what it looks like and how to build business resilience and fortify against it.
Australian Cyber Threat Landscape by the Numbers
Reported Attacks
- Over 87,400 cybercrime reports were filed. That's an average of 1 every 6 minutes.
- The Australian Cyber Security Hotline took 36,700 calls across all industries for a 12% increase.
Financial Impacts
- Average self-reported cost per cybercrime incident:
- Small businesses $49,600 (up 8%)
- Medium businesses $62,800 (down 35%)
- Large businesses $63,600 (down 11%)
- Total losses from business email's that get compromised was over $84 million with the average loss per incident being $55,000.
See: FSB’s Warnings of Hidden Stakes of AI in Finance
Top 3 Types Targeting Businesses
- Email compromise without financial loss 20%
- Online banking fraud 13%
- Business email compromise resulting in financial loss 13%
Ransomware
- 12% of all cybersecurity incidents involved ransomware where attackers control and/or steal data and extort victims for damage.
- Cyber incidents where attackers focus solely on stealing sensitive data from a target without locking down or disrupting the victim's operations is becoming more popular.
AI-Driven Social Engineering
- Attackers use AI to create realistic phishing emails, deepfake videos, and voice simulations to make scams more difficult to detect.
- Vishing (video phishing) attacks are new and effective and have successfully tricked organizations into transferring millions of dollars.
Methods of Attack
- Phishing (23%), software exploiting software/websites/services over the internet (21%), and brute-force attacks (15%) were the top methods used in breaches.
- Government sponsored 'bad actors' are using more advanced technologies including Living Off the Land (LOTL) attacks where attackers use legitimate tools and techniques available within a tech environment to carry out malicious activities with behaviours that appear normal to the system.
Why Fintech Firms Are Prime Targets
- They deal with sensitive information such as financial details, transaction records and personal data that is valuable to cybercriminals.
- In today's complex world of finance, multiple platforms and third party providers can result in a high number of entry points for attackers.
- Finance is quick to adopt new technologies which can be full of security gaps until they are discovered and patched.
- Cyberattacks in finance are serious and can harm a company’s reputation, lead to legal fines and can cause large financial losses.
See: Elon Musk’s X Challenges California’s Deepfake Law
Ways Fintechs Can Take Action
Strengthen Cybersecurity Foundations
- Adopt the Essential Eight Framework
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- Patch and update software regularly
- Use multi-factor authentication (MFA)
- Segment networks into sections to limit or contain breaches
- Security First Design Practices
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- Prioritize cybersecurity during product/service development
- Securely configure all systems and software by default
See: FBI Raids Polymarket CEO’s Home After Election Prediction
Improve Staff Awareness and Knowledge
- Train employees to identify and report phishing and other social engineering attacks
- Organize regular cybersecurity drills to test readiness and reinforce best practices
Protect Key Systems and Data
- Implement network segmentation to isolate sensitive systems
- Use advanced endpoint detection and response (EDR) tools to identify and mitigate threats
- Encrypt sensitive data when it's at rest AND in transit
Harden Authentication Processes
- Use phishing-resistant MFA for all accounts
- Encourage all staff to use password managers to create strong and unique credentials
- Regularly audit and remove inactive user accounts to reduce entry points for attackers
Monitor and Manage Supply Chain Risks
- Perform due diligence and monitor all third-party vendors and service providers
- Regularly assess supply chain vulnerabilities and ensure all partners comply with cybersecurity best practices
See: Key Findings from 2025 Advanced Payments and Fintech Survey
Use AI for Defence
- AI can quickly detect any anomalies in a network's activity and assess potential threats
- AI tools can preemptively identify phishing campaigns and suspicious behaviours
Be Prepared for an Incident and Act Quickly
- Develop a Cybersecurity Incident Response Plan
- Ensure all employees understand their roles in a potential breach scenario
- Conduct routine 'fire drill' tests of the plan to identify weaknesses and build confidence
- Back Up Data Regularly
- Maintain encrypted backups of critical data systems and test recovery processes regularly
- Collaborate and Partner with Threat Intelligence Networks
- Share and receive threat intelligence to stay informed about the latest tactics and vulnerabilities
See: Meta to Appeal €798M EU Fine for Antitrust Violations
Focus on Proactive Measures
- Review and update systems for vulnerabilities continuously
- Regularly simulate attacks, such as penetration testing, to identify weaknesses
Report and Respond
- Encourage timely reporting of suspicious activity to industry cybersecurity bodies or government resources
- Establish clear channels for escalating cybersecurity concerns internally
Cybersecurity is on Fire and Companies Need to Be Prepared
Fintech firms must manage cybersecurity as an ongoing business function instead of thinking about reacting to one-off incident. Threats are becoming more sophisticated and frequent. Companies need to take proactive steps now to protect their operations and data, and maintain the trust of their customers.
Learn more: ASD Annual Cyber Threat Report 2023-2024
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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FSB’s Warnings of Hidden Stakes of AI in Finance
AI Risks | Nov 19, 2024
Image: Financial Stability Implications of Artificial Intelligence (FSB)
Why the FSB’s Warning Matters More Than You Think
For those who think AI is simply automating tasks, in new report published Nov 14, 2024 titled, "The Financial Stability Implications of Artificial Intelligence" (40 page PDF) the Financial Stability Board (FSB) warns think again. AI is fundamentally changing how financial institutions operate, strategize, and compete. In less than two years, Generative AI and innovative large language models like ChatGPT are game changing the space. Banks and financial institutions are already investing in AI technologies or exploring its capabilities for using AI for everything from complex underwriting to optimizing investment allocations and autonomous bots in the agentic web.
See: NIST Insights: GenAI Risk Management Framework
The FSB is warning that these advancements come with deeper and much more significant risks where financial markets would be at the whim of AI systems all reacting in unison given that they are trained on mostly identical data, making the same decisions at lightening speed, all magnifying shock risks that could trigger widespread instability. Let's break it down.
Risk 1: Too Much Reliance on the Same Players
The report highlights that AI relies on special tech infrastructure such as specialized hardware (i.e., NVIDA chips), cloud services, and pre-trained models that collectively are creating a 'single point of failure' risk. The risk is about third-party dependencies and concentration in the AI supply chain. There are only a limited number of providers and in the event of a key provider facing disruption, it could create a systemic vulnerability that could paralyze global financial operations.
Risk 2: Groupthink on Steroids
As mentioned above, AI models often use the same training data and algorithms which means that many institutions could end up making similar AI-driven decisions under stress. For example, if trading algorithms automatically respond to market drops all in the same fashion, then liquidity could dry up instantly triggering a market meltdown (instead of a routine dip).
See: Canada and Trump Risk Index What Fintechs Need to Know
We've all heard of 'flash crashes' or recent 'run on banks' that are hyper sensitive in the digital age (think pressing a button to get ones money out versus back in the day, lining up at a bank branch to withdrawal funds). Further, mass adoption of AI on a much larger scale could make these event risks more frequent and severe.
Risk 3: The Rise of AI-Powered Fraud
AI technologies are helping both good and bad actors. These days, GenAI can generate realistic fake identities, deepfake videos, and even manipulate sentiment using misinformation campaigns. Imagine a fake video of a CEO announcing a company’s collapse and markets responding negatively before the truth surfaces. Further, a deeper issue of fraud in an AI driven world is that the current fraud detection systems used by governments, central banks, financial institutions, pretty much everyone were not designed to protect against AI smart attacks. And it will take time before these same tools that institutions are using to optimize their operations can also be sophisticated to enough to protect themselves from escalating threats. The 'cat-mouse' game of fraud has always been there but AI risks increasing the gaps in any system.
Risk 4: Misaligned Incentives
Simply put, artificial intelligence tools and the ownership entities behind them can prioritize profit over ethics. One example is an AI bot looking to optimize profit may find it beneficial to spread disinformation to then profit from shorting a stock. While the bot may generate returns in the short term, the long term damage to financial markets and the trust in the systems that manage them could become toxic.
So What Needs to Happen?
There needs to be a mix of better oversight and governance, smarter regulations and more international collaboration. Financial institutions need to rethink how they will adopt and deploy AI by:
See: OECD-FSB Discuss New AI Trends in Finance
- Creating AI solutions by working with a wider range of partners (to mitigate supply chain risk) and develop in-house if possible.
- Building robust security and risk management programs that can withstand disruptions and remain resilient.
- Establishing clear governance practices of how AI systems align with regulations and ethical principles.
Conclusion
The FSB's report is a warning to financial institutions, regulators, and global leaders that they must act now and address vulnerabilities in AI governance, third party dependencies, and security. The stakes are high, and the time to act is now.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Ex-FTX Exec Avoids Prison as Bankruptcy Plan Repays Customers
FTX | Oct 31, 2024
Image: Freepik
Ex-FTX Exec Nishad Singh Dodges Jail After Aiding Prosecutors in Fraud Case While Bankruptcy Plan Sets Full Repayment for Customers
United States District Judge Lewis Kaplan decided not to send the former FTX Director of Engineering, Nishad Singh to prison for his remorse and assistance in cooperating with prosecutors in convicting his former boss, FTX founder Sam Bankman-Fried (SBF), of a multi billion dollar theft of client cash in the now bankrupt crypto exchange. Singh's testimony about fund misuse and political donations highlighted his part in the case.
See: Ex-FTX Exec Ryan Salame Starts 7.5-Year Jail Sentence
Note that another former exec at FTX and co-founder, Gary Wang, is set to be sentenced on November 20, 2024. Similar to Nishad Singh, Wang cooperated with prosecutors in SBF's trial by sharing important details about FTX’s financial wrongdoings.
Court Approves Repayment Plan
On the financial front, the court also approved a repayment plan that could allow FTX to distribute up to $16.5 billion collected from asset sales. This represents about 98% of former customers who were owed less than $50,000 and they could see full repayment of their claims, which will be paid out in cash (not crypto) to the disappointment of some people given that uptick in market gains recently.
See: Caroline Ellison Sentenced 2 Years for Role in FTX Fraud
Even FTX shareholders might recover some of their equity investment with an expected payout of $230 million. Payments are set to begin later this year once logistics are finalized.
Why It Matters
FTX case will no doubt make for a remarkable 'case study' on how insider cooperation with the courts, and a very well executed asset recovery can lead to accountability and acceptable outcomes for adversely affected customers. It may even motivate whistleblowers.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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