The FinTech Approach to Compliance Management

FinTech has revolutionized the financial sector globally in just a few years. FinTech apps used to be limited to a single function initially, but new FinTech offerings include many banking-adjacent services. The appeal to users is easy to understand; FinTech solutions are generally more accessible and faster than traditional financial channels. However, there is still one area where FinTech struggles with regulatory compliance.

Banks and financial institutions are experts in the financial world, which means that these organizations are full of experienced financial experts that have designed all processes to be compliant. FinTech is at its core a disruptive approach towards finance; instead of following traditional processes, FinTech services utilize new technology to provide a faster way for customers to complete their transactions and partake in other financial activities.

A significant problem for FinTech operations is that they need to interact with the traditional financial network. Any FinTech business that wants to create a significant impact needs to work with existing financial institutions. However, the traditional financial network can only be interacted with if all the regulatory compliance requirements that apply to the financial network are met. This means that even though a FinTech’s direct activity may not be regulated when the FinTech transacts with a bank or a financial institution, the transaction will come under the purview of regulators.

The fear is that complying with the same regulations as banks and financial institutions will force FinTech businesses to be slow because regulatory compliance requires time and effort. However, this is not necessary, as taking a FinTech approach to regulatory compliance can help FinTech businesses get the best of both worlds; deliver faster services than traditional banking channels while still ensuring regulatory compliance.

Focus on Regtech

FinTech solutions focused on regulatory compliance are referred to as Regtech. Regtech is exciting for the financial sector because it enables banks and financial institutions to automate compliance activities and reduce the time it takes to ensure compliance before completing a transaction. However, the role that Regtech can play for FinTech operations is even more significant and more foundational than what the technology is doing for the traditional financial sector.

Regtech does for regulatory compliance what FinTech did for finance businesses – it upends existing processes and uses new technology to make work easier and workers more productive. Manual regulatory compliance is challenging for FinTechsbecause it is anathema to FinTech – having to follow complicated rules that slow down all processes goes against everything FinTech stands for. Regtech simplifies things because it presents regulatory compliance objectives on a technology platform similar to the tech platforms already being used in FinTech businesses. Instead of facing byzantine regulations written in an ornate language, FinTech businesses can ensure regulatory compliance through a digital UI – a language they are already experts in.

FinTech marries financial processes with technology; Regtech marries regulatory compliance with technology. Anyone with a technological background will quickly understand how to use a regulatory compliance management platform and all the notifications and alerts they receive from the platform. Imagine sending a tech worker an email about how something they did violates a regulation they do not understand and sending them a link to a document that has the law written down. The tech worker will have to look at the document, understand the law, then try to decipher how the law/regulation applies to what they were doing and act accordingly.

Contrast this manual workflow with how the same issue will be handled on a compliance management platform. The compliance expert or the platform itself highlights an issue. The tech worker looks at the notification and opens the issue on the platform for more details. The tech worker can see the regulation causing the issue, the process to which it applies, and how the issue is blocking the process from being successful. Instead of first understanding the regulation and how it interacts with the processes being used within the organization, the tech worker can directly see the compliance framework in action to understand what they need to change.

From Born-Digital to Born-Compliant

Many FinTech businesses succeed because they are ‘’born-digital’’ – a phrase used to highlight that the business has its root in technology and has passed on a traditional FI structure and process. Regtech enables born-digital businesses to become easily compliant with regulations. It will also help these businesses become born-compliant by making regulatory compliance accessible to a broader tech audience more likely to be present in FinTech businesses.

Interested in seeing how your organization can enhance its regulatory compliance capabilities throughout the organization? Get in touch with our experts for a demonstration of what Predict360 can do for FinTech operation.