The Prospect of Fintech’s: Risk and Regulatory Compliance

Recently, affected by pandemic, consumers were forced to move more digital, therefore behavior of clients was impacted dramatically. Furthermore, financial system has been impacted by new market players, it left consumers to become more vulnerable and reliable on digital word, face digital innovation, access, transfer the data flow globally. Hence, the rapid growth of fintech became inevitable, therefore the alter in legislation had been initiated and implemented to promote these changes[1].

Financial technology (Fintech) has been obviously developing throughout the recent decade tremendously, especially ever since banks went online.

So, let us deliberate what ‘Fintech’ is in the first place?

Frankly and simply to put it, the fintech is just technology that is used to improve the delivery of financial services. This terminology gained the weight in the 21^st century, hence it has driven how people interact with their money for well over a century. Broadly speaking it is technical solution which includes different sectors and industries such as retail banking, fundraising and investment management to the digitalization of finances.

The technical evolution we can trace back to 1990, and segregate into three stages[2], however the regulatory actions taking place across the developed world – mainly Europe and the USA, were initiated only in 2015. Following to the rapid growth of the fintech market and tools, in the following year, 2016 to be exact, the Comptroller of the Currency (OCC) published a paper on its banking system, referring the protection and growth for fintech to grant them specific rights and obligations[3].

Subsequently, to this announcement, on July 19, 2017, the Exchequer Club in Washington, DC, Keith Noreika, acting Comptroller of the Currency, expressed strong support for the responsible innovation initiative. He considered further for the proposal to grant special purpose national bank charters to fintech companies as “a good idea that deserves the thorough analysis and the careful consideration [OCC is] giving it -” providing another specific feature, to be treated as the same as banks[4].

Further, the International authorities were also addressing fintech-related regulatory concerns. In 2017 June, the Financial Stability Board (FSB) published a report on the financial stability implications of fintech firms, tackling disruptive influence of Fintech and the critical insight on the potential of a business going further in the cooperation and obligations on the financial players in the market. Thus, the report determines that there are “currently no compelling financial stability risks from emerging fintech innovations,” however, 10 issues that merit authorities’ attention, of which three are seen as priorities for international collaboration, were adopted’.

Other than that, the EU authorities are likewise facing the concerns regarding the rapid changing environment and the growth of the digital market. In March 2018, the European Commission published an Action Plan on FinTech: “For a more competitive and innovative European financial sector”. The Action Plan contains different actions around three main objectives: 1. Enabling innovative business models to reach EU scale (actions regarding licensing requirements, standardization and innovation facilitators[5]).

Therefore, the ethical and safe usage of big data, artificial intelligent and machine learning will be the focus of the EU legislators and international authorities, looking at both financial consistency and customer concerns which are impacted using these technologies.

Financial Crime and Market Conduct along with the Future of fintech

In the recent forum which took place in the European Parliament, represented on the 6th meeting of the FinTech Working Group, the FinTech Working Group of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published it’s minutes of the meeting, and presented the slides on the 16^th of March 2021. The agenda for the meeting was “Using distributed ledger technology (hereinafter – DLT) in finance: Potential benefits and challenges.” The meeting raised the concerns over the DTL networks, the actors who were not necessarily identified and knowing the history of transactions was more difficult, so governance and controls were important to identify and resolve any Anti Money Laundering issues. It was underlined the importance of the know-your-customer, know-your-client, and know-your transaction principles in the context of DLT networks.

Consequently, to conclude, on the review of EU legislative proposals, international approved submissions, such as the European Central Bank Guide to licensing, review on the recommendations from the credential authorities, such as the Basel Committee on Sound Practices report we can predict to see increasing legislation on the below major areas: