Regulatory compliance is constantly changing and creating a ripple effect with consequences impacting the global financial sector. While keeping up with the changes can be challenging, FinTechs must have solid risk management controls in place to ease this burden.
In a new blog post by Sigma Ratings’ director of financial crime intelligence, Hamad Alhelal said that the recent regulatory and industry developments suggest the future of FinTech will see a potential blurring of the lines.
The list of regulatory and supervisory responses to FinTech-related risks continues to lengthen. This will continue to ratchet up over the coming years as the sector continues to develop and grow. More recently, UK-based challenger bank Monzo was under fire by the Financial Conduct Authority (FCA) facing a potential civil and criminal money-laundering investigation.
“In May 2021, the FCA notified us that it had started an investigation into our compliance with the Money Laundering Regulations 2017, potential breaches of some of the FCA Principles for Businesses and related FCA rules for anti-money laundering and financial crime systems and controls between 1 October 2018 to 30 April 2021,” Monzo said in its annual report. The online bank said that the financial watchdog was “reviewing and investigating” its compliance with financial crime regulations.
Apart from Monzo, Germany-based neobank N26 too was ordered by the Federal Financial Supervisory Authority (BaFin) to step up its AML efforts. BaFin mandated that N26 Bank change how it approaches IT monitoring and customer due diligence.
Other authorities have also addressed FinTech-related regulatory concerns. In June, the Financial Stability Board (FSB) published a report on the financial stability implications of FinTech firms where it identified ten supervisory and regulatory issues that “merit authorities’ attention.”
Alhelal highlighted that the disclosures come at a time when the Bank for International Settlements (BIS), a consortium of central banks and financial regulators, called for FinTechs to be regulated more like banks and to “impose more stringent regulation on technology giants that spill over into financial services,” and they may have a case.
The BIS suggested that “tech companies that play a critical role in payments and other areas should be subject to stricter regulatory scrutiny that considers issues beyond traditional market risks.” The paper suggested that while traditional FIs “can be designated as systemically important,” regulations in most jurisdictions fail to address the “potential (possibly global) systemic impact of big-tech operations and of possible spillover effects to the financial sector and across all of the activities that big techs perform.”
According to the BIS, “financial technology firms have grown in tremendous scale in recent years and have become important players in areas traditionally handled by banks.” As Alhelal said, “With this new guidance, FinTechs need to be thinking even more deeply about regulation, and should look to adopt new RegTechs that leverage advanced technologies to foster financial inclusion while also safeguarding the global financial system.”
It’s fair to say that with regulators laser-focused on financial technology firms, those entering the FinTech space need to factor the ever-changing nature of regulation and supervision into their strategies, business planning, governance and risk management.
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