The increasing reliance on fintech platforms by the financial services industries could pose as yet uncovered risks to the sector leaving it vulnerable to cyber attacks and exposing the industry to financial instability, according to the governor of the Bank of England Mark Carney.
Speaking at a G20 conference in Wiesbaden, Germany, Carney said that the increasing reliance on technology, specifically by banks, could cause a trickle down effect increasing liquidity risks for other services and "signal the end of universal banking as we know it".
"If today's universal banks have less stable retail funding and weaker, more arms-length client relationships, the volatility of their deposits and liquidity risk could increase," he predicted.
Carney also warned of the increasing threat to the financial services industry of potential cyber hacks on fintech platforms through "interconnected IT systems".
He said; "In recent years, the cyber threat to the system has grown as financial institutions have become more reliant on interconnected IT systems.
"As the fintech future envisages the sharing of data across a wider set of parties, coupled with greater speed and automaticity in executing transactions, the challenges around protecting data and the integrity of the system are likely to increase.
"One sign of this is a growing preoccupation in the insurance industry with how best to underwrite such risks," he added.
As the chair of the Financial Stability Board (FSB) Carney also said that digital currencies including bitcoin would take a significant place in the future of modern financial services, but they would need to meet the "highest standards of resilience, reliability, privacy and stability".
Matthew Harris, director at Fife-based Dalbeath Financial Planning, said: "In terms of the adviser market, where we see fintech most of all is robo-advice and in similar areas to that, and that has the potential to be more useful for customers, but it carries risks as well in terms of ensuring the advice given is generally suitable for the person, if its being given by a computer rather than a person.
"So, there are risks and benefits in all types of fintech, whether its banking or financial advice."
Chris Davies, founder of fintech consultancy Engage Insight, said that the adviser community could be assured that fintech and face-to-face consultancy were complimentary.
He added: "We view technology as an enabler tool, at the end of the day its a big enough market and there is enough to play for for everybody.
"Investors are saying 'yes, we value technology', it allows us to do online banking, it allows us to do cash flow modelling and other things, but when it comes to the crunch, we want to speak to someone.
"You need a bank of people behind the technology you are offering, that's what people value, at the end of the day, people want to meet people and buy from people, so fintech and the adviser offering are complimentary."
