The global financial technologies (fintech) market is expected to grow by 20 percent in the next four years, and it’s time for your company to carve out its piece of the pie. Fintechs may not have been historically subject to the same regulatory conditions as banks and other traditional financial institutions, but that doesn’t mean regulations aren’t due for a change – a recent executive order has already been signed to start the process of building a new regulatory framework for fintech.
Your company should be prepared to comply with new fintech regulations. Many fintech is already running afoul of regulators. Here’s what you can expect and what you need to do to prepare.
Regulators Are Paying Attention to Fintech Companies
Many fintech companies may claim they’re not financial institutions, but they do typically provide services similar to those provided by banks and financial institutions, and regulatory bodies have noticed that. Although regulation of fintech is in its infancy, many fintech has already run afoul of regulators – usually by mistreating customers or by failing to follow regulations placed on financial institutions.
For example, fintech lender LendUp received a $6 million fine from the Consumer Financial Protection Board (CFPB) after it violated consumer lending laws. Other fintech has been fined for breaking anti-money laundering (AML) regulations.
Know the Regulatory Landscape
Fintech companies may be more beholden to banking regulations than they realize. Fintechs must comply with federal AML regulations. They need to follow fair lending and consumer protection laws. They have a responsibility to protect consumers from data breaches and other cyber attacks. Fintechs that provide “bank-like” products and services may be subject to the Bank Secrecy Act. They must follow know-your-customer (KYC) laws.
While it’s not expected that fintech will be required to obtain national bank charters, it’s become an option that many fintechs are pursuing. Fintech companies that don’t have national bank charters are governed by the regulations of the state in which they operate, but many of these companies operate across state lines. It’s easier for fintech that offers bank-like services to get national bank charters, so they can be governed by federal banking regulations.
Make Regulatory Change Management and Compliance a Priority
Any fintech company operating right now needs to make regulatory change management and compliance a top priority. Regulators are aware that implementing too many regulations too early could stifle innovation in the fintech space. They are nevertheless ready to provide the growing fintech industry with the oversight it needs to provide consumers with good service.
The future of fintech regulations is uncertain, but it can be assumed that regulators will want fintech to observe many of the same regulations in place for banks and financial institutions. Comprehensive regulatory compliance software can help you manage regulatory change. The right software solution will reduce your regulatory risk by ensuring that you meet your regulatory obligations, even if they’re new.
If you’re going to go the way of fintech like Social Finance (SoFi) and get the new fintech charter, you will be subject to the same regulatory requirements as banks. However, you’ll be able to offer your customers full banking services. Federal oversight will make it easier to operate and provide financial services across state lines, so getting a federal fintech banking charter is a good idea if you want to grow your company beyond the borders of your state.
The future of fintech regulation is expected to make space for innovation while discouraging risky behavior and providing much-needed protections for consumers. Regulators across multiple jurisdictions are working towards effective fintech regulations that don’t stifle innovation and growth. The world’s leading economies recognize that fintech regulation is essential to the economic stability of the entire world, and they’re working to create regulations that provide protections against abuse and inequity while still giving fintechs the space they need to continue making advancements in the financial services space. Regulatory sandboxes, which give fintech and regulators the space to pilot new apps and services in a controlled environment, are coming into play in many countries.
There’s no reason to fear the future of fintech regulations. Regulators are aware that they need to protect both consumers and the world economy from unregulated fintech, and it looks as though future fintech may have the option to obtain a federal charter and operate under banking regulations. As your fintech moves into the future, it’s important to focus on regulatory compliance as much as innovation or anything else.