The Rising Digital Risk: How Technology is Transforming Asset Protection
Digital risk was not a part of the syllabus when I was studying to become a financial planner decades ago. However, times change, and with it comes the emergence of new risks. Some risks that were once prevalent may even become irrelevant over time.
In today’s digital age, more and more of our assets are held in digital mediums, protected by usernames and passwords. Unfortunately, hacking and unauthorized access to digital accounts have become increasingly common. But this situation may not remain permanent and could eventually become obsolete.
To illustrate this point, let’s consider the example of writing a check many years ago. My father taught me techniques to ensure the check wasn’t tampered with. Back then, non-MICR checks were common, and if a check was issued outside the city where the account was held, it would take weeks to clear. The current generation may find it hard to comprehend this, but it’s important for them to learn about the past and understand the evolution of banking and financial systems, as well as the impermanence of investment risks.
To protect ourselves from digital risk, regulatory bodies like the Reserve Bank of India and SEBI regularly issue warnings and run awareness campaigns. However, digital risk is a real threat to our assets, as unknown entities can access and even siphon them off.
Previously, an investor had to physically visit a bank, and the bank officers would recognize the account holder by their appearance. There was a human element to the process. Today, our identities are recognized solely by our usernames and passwords, and that human element has disappeared.
In the future, we will likely see more of our currencies, important documents, and financial assets held in digital forms. Biometric solutions are being considered to address identity theft, but they also rely on storing data in digital format, raising concerns about potential tampering or hacking.
Recently, while discussing a client’s will with my team, I raised a crucial question: who will inherit the username and password for digital assets? Younger legal professionals understood the issue, but some senior counsels dismissed it. This situation could also arise with regards to power of attorney. If our assets are held in digital form on a cloud platform owned by a foreign entity, will they accept a will or power of attorney from an Indian jurisdiction?
Furthermore, if assets are to be bequeathed to multiple individuals, how will they access them if usernames and passwords are involved? And if biometrics are used for security, how will multiple beneficiaries access the assets?
The current legal system is not prepared to handle these complex situations. The legal fraternity and technologists need to acknowledge these concerns and work together to find solutions.
In conclusion, it is essential to accept that no investment is entirely risk-free. Returns on investment are earned by taking risks. We must acknowledge this reality and recognize that new risks will continue to emerge while older risks may fade away. Risk and returns are interlinked, and we must adapt to the changing landscape of asset protection in the digital age.
Note: This article is for informational purposes only and does not constitute financial advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
