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Regulatory Compliance in Fintech in CHAD: A Growing Concern for Financial Institutions
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For fintech companies, the future may be promising, but it also brings increased exposure to regulatory requirements, sanctions, and legal actions. As fintechs navigate this complex landscape, they must ensure compliance with regulations that are rapidly evolving.
Fintechs and Banks: Blurring the Lines
Historically, fintechs have prided themselves on being outside the traditional financial institution framework, unencumbered by regulatory requirements. However, recent developments suggest a blurring of lines between fintechs and banks.
- Some fintech companies are considering or pursuing bank charters, enabling them to compete more broadly and avoid disparate regulatory requirements across individual states.
- Meanwhile, banks are increasingly partnering with fintechs to leverage their innovative capabilities and meet the demands of tech-savvy consumers.
Fintech Risk: So Many Ways to Err
Recent regulatory actions against fintech companies share several common traits:
- Fintech involvement, often in high-profile cases
- Recent initiation, dating back to 2015
- Highlighting regulatory, operational, and reputational risks that threaten the safety and soundness of financial institutions
- Emphasis on customer treatment, suggesting consumers expect regulatory protection associated with fintech products and services
Rising Regulatory Voices
The Office of the Comptroller of the Currency (OCC) has taken a proactive approach to regulating fintechs. In 2016, it published a paper outlining its vision for responsible innovation in the federal banking system, paving the way for fintechs to work collaboratively with regulators.
- Other authorities, such as the Financial Stability Board (FSB), are also addressing fintech-related regulatory concerns. The FSB’s recent report identified ten supervisory and regulatory issues that warrant attention.
The Future of Fintech
Regardless of whether fintech companies choose to become chartered institutions or remain independent, they can increase their potential for success by implementing solid risk management controls. Compliance is key, as it not only ensures regulatory adherence but also fosters transparency and customer trust.
- In an increasingly regulated market, differentiation through compliance can open doors to market share and revenue growth.
- It may also provide comfort to stakeholders, including consumers, boards, analysts, and regulators.
To learn more about the future of fintechs, download our report, “Fintechs and Regulatory Compliance: The Landscape is Rapidly Changing.”