Wealthtech is a subset of fintech. It combines a range of advanced digital tools that provide investors and wealth managers with greater financial insights and precision. However, as with all new technologies and business models, there are risks as well as advantages – which is why it’s important to have the right insurance.
What are the key insurable risks for wealthtechs?
1. Regulatory Investigation Costs – examples of compliance issues include:
• Digital advice services that don’t appropriately capture a client’s risk tolerance, resulting in advice to invest in investment or savings products that do not meet suitability requirements
• Failure to obtain sufficient information from the client to allow the advisor to conclude that its ongoing advice was suitable
• Misleading advertising leading to bad decisions
• Non-compliance with different regulatory and reporting standards in different jurisdictions.
2. Financial Crime – – wealthtech is global and criminals can target vulnerabilities to enable money laundering. Insurance can cover any regulatory or legal investigations resulting from criminal activity.
Theft of money/fraud can also occur both internally and externally. Insurance can cover the financial loss suffered as a result.
3. Cyber attack – wealthtech platforms and the reliance on the internet can leave providers exposed to a wide number of cyber threats such as a data breaches, business interruption and extortion from ransomware. Not only can these events cause direct loss to the company (eg, from business interruption) they can also lead to third-party liabilities and regulatory investigations. A cyber insurance policy can protect against legal liability and potential losses.
4. Software failure – programming errors, code vulnerabilities and software bugs in wealthtech platforms could result in a malfunction leading to financial loss for the client; for example, failing to execute an order to buy or sell shares for a number of users. Users could then bring claims for breach of professional duty. An appropriate professional indemnity policy can cover costs associated with defending such claims and any settlement which may be due.
5. Professional errors – most wealthtech firms still need human input, which can lead to losses through human error. Examples include general poor service, bad advice or errors such as transferring money into the wrong account. A professional indemnity policy can cover any resulting compensatory damages and legal costs.
Mapping risks to insurance
We recommend that, at least once year, firms should map key business risks to cover provided in an insurance policy. Circumstances can often change for fast-growing businesses, with new working styles, new product offerings, and new fund-raising and operations in new territories.
How Elmore Insurance Brokers can help
At Elmore, we help our clients to actively monitor and manage risks. We are insurance and risk management partners for wealthtechs and other tech specialists, and we tailor cover to individual challenges and needs. Contact us to find out more about our products and how we can protect your business.
Written by George Pearson, Client Executive of the Elmore Financial Insurance Team, Elmore Insurance Brokers Limited.