In a speech to the Banking Standards Board, Vos warned that in an increasingly interconnected digital future, the growing sophistication and scope of scammers are posing a “greater risk of fraud in our financial and legal systems than ever before”.
Vos said the “lighter touch” nature of UK’s regulatory approach, compared to the more stringent frameworks in Europe and the US has allowed the proliferation of tech startups in Britain.
Although these startups and developments in the wider digital revolution could reduce the risk of fraud – for instance by bettering security and preventing data loss – Vos said the other aspects of digitalisation will also provide “opportunities for those wishing to game the system”.
For instance, the current use of permission-less public blockchains for financial transactions – where any computer or node can join a network – has already lead to a theft of US$60m worth of Ethereum, a crypto-currency.
And while changes could be made, for instance by requiring permissions to join the blockchains, Vos said that “even such systems are unlikely to be invincible”.
In addition, Vos said the “exponential” growth of fintech and legal tech will also have dramatic effects on fraudulent behaviours that already exist today – such as insider frauds – because new channels for exploitation will be opened.
“It is already apparent that there is considerable scope for fraud in the brave new world of fintech, smart contracts and artificial intelligence,” in addition to cyber-crime, hackers and conning in general, he continued.
“Moreover, any future lapse in cyber-security in our financial or legal systems could be far more serious than any of the frauds I mentioned at the beginning of this talk.
“For the older ones amongst us, cyber insecurity in the burgeoning digital environment is probably the most frightening risk of all.”
The answer, said Vos, was not to create more legislation, as heavier regulatory burdens could hamper innovation without addressing fast-moving and continually evolving cyber-crime.
Instead, he argued that the judiciary, and the legal and regulatory community must work more closely with financial service providers to ensure vigilance.
“In my view, we need to develop much smarter regulation than we have had in the past. The regulation needs somehow to be a part of the code that underlies the smart financial transactions themselves,” Vos continued.
He added the scandals would be hard to predict and would not stop coming.
“The more we work together, the more I think we can be ready for them; and the more we can ensure that any loss of confidence that they cause in our financial systems and in our judicial system is as limited as possible.”