Trust and Fintech: Lessons from Recent UK Corporate Failures

Abstract

How does experiencing direct investment loss affect individuals’ trust in the financial system? We design a survey involving investors directly exposed to investment losses from UK corporate fintech failures. This exposure significantly reduces trust in financial markets, regulators, and big audit firms, and the likelihood of future risky asset market participation. Moreover, trust loss is not fully reversible even with possible compensation. A second survey involves master’s students exposed to reading about the failures. Information about losses of others reduces trust but less than direct experience. Overall, our results emphasize personal experience over information in determining trust and future investment decisions.