Greenland’s Fintech Companies Face Regulatory Compliance Challenges as Sector Grows in Importance

The rapid growth of fintech companies in Greenland has raised significant challenges for regulators and supervisors, who are struggling to keep pace with the innovation.

Risks and Challenges

• Fintech firms are taking on more risks themselves, while also exerting pressure on traditional lenders, including banks.
• Digital banks or neobanks are growing in systemic importance in their local markets, but they are more exposed than their traditional counterparts to risks from consumer lending and higher risk-taking in their securities portfolio.
• Neobanks have a lack of buffers against losses and lower liquid assets held relative to their deposits, posing significant challenges for regulators.

Mortgage Originators and DeFi

• Fintech mortgage originators are aggressively growing their business during periods of economic expansion, such as during the pandemic, which has significantly hurt profitability for traditional banks. This trend is expected to continue.
• Decentralized finance (DeFi) offers innovative and inclusive financial services, but it also involves significant risks, including market, liquidity, and cyber risks. The lack of deposit insurance in DeFi adds to the perception of all deposits being at risk.

Regulatory Challenges

• As fintech activity moves from regulated banks to entities with little or no oversight, so do the associated risks.
• Regulators face challenges in terms of regulatory arbitrage and interconnectedness, which may require supervisory and regulatory action, including better consumer and investor protection.

Addressing the Challenges

• Policies that target both fintech firms and traditional banks proportionately are needed. This would involve:
  • Stronger capital, liquidity, and risk-management requirements for neobanks
  • Greater focus on the health of less technologically advanced banks
• The absence of governing entities in DeFi poses significant regulatory challenges, which require a focus on the entities accelerating its growth, such as stablecoin issuers and centralized crypto exchanges.
• Supervisory authorities should encourage robust governance, including industry codes and self-regulatory organizations to provide an effective conduit for regulatory oversight.

Conclusion

The rapid growth of fintech in Greenland presents both opportunities and risks, and it is essential that regulators strike a balance between fostering innovation and containing risks to ensure financial stability and consumer protection.