Proposed government legislation around crypto transactions add to the regulatory risks for financial technology (fintech) companies. In response to the needs of the fintech sector and to assist in meeting the new requirements we have developed Gallagher Crypto-Pro insurance which includes an investment management insurance (IMI) policy specifically tailored for businesses with funds in the digital asset space.
What the new crypto transactions regulations will mean for Australian fintechs
The new requirements mean qualifying businesses will need to obtain an Australian Financial Services Licence, and digital asset platforms will need to meet licence conditions. Businesses that provide financial services to retail clients must also be able to compensate clients for breaches of the Corporations Act 2001.
Gallagher Crypto-Pro insurance includes an investment management insurance (IMI) policy specifically tailored for businesses with funds in the digital asset space.
Why fintechs need purpose designed insurance cover
As fintech companies leverage innovative solutions to enhance customer experiences, streamline operations and create new opportunities, they need insurance cover for the key risks they face.
The rapid pace of development, often attributed to the large return on investment requirements by early stage investors, can create a raft of risk exposures for fintechs, including regulatory issues.
Common regulatory challenges for fintechs
- Compliance and licensing — often require navigation of complex regulatory frameworks. Adhering to know your customer, anti-money laundering and counter terrorism financing can also pose challenges.
- Data privacy and security —increased reliance on technology and collection of customer data raise concerns about privacy and security. Regulatory bodies are actively implementing and strengthening data protection regulations. Compliance is essential.
- Cross-border operations — introduce complexities in complying with local regulations with varying frameworks.
- Consumer protection — regulatory bodies are striving to establish rules and guidelines that protect consumers from fraudulent practices, misleading marketing, unfair pricing and inadequate disclosure of terms and conditions.
How Crypto-Pro insurance works
- civil liability
- crime
- directors and officers' liability insurance.
- specific civil liability coverage for investing in digital assets
- crime insurance for both cold storage and hot storage losses
- costs coverage for our Gallagher digital assets crisis crime consultants for recovery services and forensic analysis
- full limit mitigation costs coverage.
Expert advice helps fintechs ensure risk exposures are covered
Gallagher financial services Crypto-Pro insurance experts can help businesses with digital assets comply with regulatory requirements, and provide guidance on effective risk management on related exposures:
Our specialist brokers can assist with key insurance risks including:
- compliance challenges: adhering to new regulations may require significant changes in business practices, leading to compliance challenges and increased operational costs
- licensing requirements: obtaining necessary licences or approvals can be a complex and time-consuming process, delaying business operations and expansion
- customer verification: stricter regulations may require enhanced customer due diligence, who may feel increased concern about privacy and data security
- cybersecurity risks: increased regulatory scrutiny may attract cybercriminals seeking opportunities, leading to hacking attempts and data breaches
- volatility impact: regulatory announcements can significantly impact cryptocurrency prices and market volatility, affecting financial stability and investor confidence
- reputation damage: non-compliance or legal issues can damage business reputation, leading to loss of customer trust and negative publicity
- international compliance: cryptocurrency companies operating globally must navigate varying regulations across different countries, adding complexity to compliance.
Other key liability insurance essentials for fintechs
- Professional indemnity insurance — covers fintechs for claims of professional negligence, or errors or omissions in the services or advice they provide. It can cover legal costs, settlements resulting from claims or financial losses or damages.
- Cyber liability and data breach — given the data driven nature of fintech operations, cyber liability insurance is crucial. It covers losses resulting from data breaches, cyber-attacks or unauthorised access to sensitive customer information.
- Technology errors and omissions cover — addresses financial losses or damages resulting from technology failures, system errors in products or services.
- Intellectual property — can provide coverage for legal expenses and damages arising from claims of IP infringement or disputes.
- General liability — offers coverage for injury or property damage claims arising from members of the public attending the business's premises, operations or use of its products.
- Directors and officers' liability insurance — protects executives against claims for wrongful acts or errors or omissions in their management duties.
- Crime — seen as a large risk for fintechs as hackers can use fake user information to launder money.
Specific coverage and policy terms may vary depending on the insurer, the nature of the business and the level of risk exposure.
How Gallagher can help fintechs manage risks from start-up forwards
Our Gallagher fintech insurance specialists can advise on the cover your business needs and assist with developing effective risk management at every stage of the company's evolution.
