A new survey of securities regulators by the North American Securities Administrators Association (NASAA) finds regulators are nearly unanimous in their concern about the risk of fraud stemming from initial coin offerings (ICOs) and cryptocurrencies.
The results come from NASAA’s recent survey on fintech and the technological innovations shaping new investment and financial products.
The survey, conducted from mid-November to mid-December 2017, collected responses from state and provincial securities regulators in the U.S., Canada and Mexico.
One-third (34%) of securities regulators said the rapid development of fintech is a positive development for investors, while 20% expressed concern with the potential negative impact of fintech on investors.
Almost one-half (46%) of respondents said it is too early to tell whether fintech turns out to be a net benefit or not.
While all regulators viewed fintech at large as having a high (28%) or moderate (72%) chance of fraud, the risk varied widely by specific products with ICOs and cryptocurrencies being most commonly identified as high risk (94%) and robo-advisors being least commonly identified as high risk (3%).
Regulators also worry that fighting fraud is becoming more difficult. Three-quarters (75%) of survey respondents said preventing fintech fraud is getting harder.
Regulators viewed millennials as being at the highest risk for fraud by some sort of fintech, according to the survey, given that they are the biggest users of fintech products. Baby boomers were viewed as least likely to use fintech, but also second most at risk of fintech fraud.
“The survey results show that our members are focused on the potential for fraud when it comes to new technologies and products, but the results also reflect recognition that these innovations may benefit investors, which makes appropriate regulation and investor education critical,” says Joseph Borg, president of NASAA and director, Alabama Securities Commission, in a statement.
“Our members are learning about new technologies and uncovering potential threats every day, but to keep pace with innovation we can’t do it alone. The industry and its investors should carefully approach any new investment product or technologies and collaborate with regulators to identify and end new threats that may arise,” Borg says.
Borg explains that NASAA has created a fintech committee, which is planning a roundtable on the subject in May.