Corporate Banking

Why Compliance is a Key Element in Fintech.

A generic misconception is that people always admire technology. It is just a half truth. If that was the case, people would have shown ample interest in knowing about technological development in Space, Biotechnology etc as that of Android and Apple. But truth being said, they only like the applications they draw from those technologies. It only matters to them when it changes their lifestyle in any respect, even though they unequivocally believe that it only advance their lifestyle.

In the case of Fintech, people are interested in applications and platforms which simplify their lifestyle. It may be Paypal or Apple Pay, people genuinely love to use them. But, if they don’t succeed to offer the great service in future, everyone would desert them forever. The failure may be due to security vulnerabilities, not complying with financial regulations etc; then the perception of the brand it was representing will get tarnished badly to the unrecoverable extent. Hence, it proves to be a mandatory fundamental for having a secure, credible service which is irrespective of geography.

The global slowdown of 2008 gave an unforeseen war chest for compliance advocacy in Banking sector. Before that, it was just a formality which was getting passed without any critical inspection and due considerations.

The aggressiveness of Fintech startups to surpass the major incumbents in banking sector provoked them to overlook the benefits of stability these compliance offers. But, once impacted badly by this unnecessary boldness, US regulators are showing relentless determination to prevent the possibilities of money laundering.

How is Compliance Enforced?
Now, regulators have shown a higher degree of aggression in chasing the institutions who evade the law. The penalty slabs have increased in the case of law breaks. Consider a case where a client’s fraudulent scheme placate a financial institution. If they willfully defects to file a Suspicious Activity Report (SAR), then by default it will be flagged as the co-conspirator and becomes liable to litigation. This renders a clear message for fintech companies to possess higher accountability for actions which it may have otherwise neglected.

CCOs (Chief Compliance Officers) will be under the constant burden to substantiate that their ventures are on track and compliant with the rules. Hence, nowadays they primarily come up with sandbox protocols for testing required compliance issues. To augment it, they are creating internal control processes to analyze Currency Transaction Reports (CTRs) and SARs. Regular audits are invoked to rejuvenate the regulatory updates to the concerned officials.

Going Forward
Superficially, regulators are perceived as pessimists more than ever and are criticized as a roadblock in the case of emergent fintech startups. But, it is premature to conclude by ignoring the consequences of 2008 slowdown.

As many experts predict, those consequences will never recur in future. But, as Daniel Schulman suggested at World Economic Forum, Davos “Accounts might get hacked”, it is the threat fundamentally more contagious and disastrous too. Then, regulators are those who come under scrutiny. Hence when we put the future in perspective, it is regulators who should be allowed to have certain elbow space to act in the interest of Fintech.

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