Tuesday 15th March 2022: The state of regulation as it stands, in my opinion, doesn’t hinder Fintech’s chances of success per se but the constant evolution and moving benchmarks does act as a major blocker.
The exciting prospect of Fintech is our agility and ability to get products to market, however, the regulatory environment is in a constant state of flux and regular compliance updates mean that development teams often have to re-scope or sometimes completely redesign late in production.
For me there’s no question that the ethics and values that the current regulatory regime is built on have to remain the same, but the measurements for demonstrating successful application of these needs to change, and fast.
Traditional FS vs Fintechs
We are trying to apply outdated benchmarks of traditional financial services and banking to a new-age of products and businesses. Fintechs are operating more and more like a Silicon Valley tech company than a Canary Wharf bank, and this approach is what breeds innovation.
Even amidst the rapid growth of the industry, regulation has remained pretty stagnant, while our means of complying with it has been completely revolutionised. Put simply, the issue for the industry is not the regulations ‘themselves’, but the fact that we are still trying to compare FinTech to Banking, and it simply is not the same thing.
The growing number of unicorns and the billions in investment suggests success is not hindered by current regulation, but with some alignment and free reign to be creative, the possibilities for our sector are endless. I mean, let’s not forget why the FinTech sector and Challenger Banks were born. Doing things quicker, cheaper and safer for customers. By no means do I think the supervisors are extinct, but they are some pace behind the industry leaders and the gap is only getting bigger.
So what next?
We are all currently working on our Operational Resilience Plans that are due for completion 31st March 2022, and personally I have found this exercise to be extremely beneficial.
Our approach has been to break down business critical tasks per department, conduct a thorough analysis of the effectiveness of the function and find a minimum operating standard for each component. We have taken this even further by adding a ‘worst case scenario’ factor into each business unit and built a Plan B and even a Plan C to make sure we can continue to serve and protect our clients at all times.
I believe the government can roll this approach out across multiple industries, starting with those sectors considered ‘key workers’ during the pandemic. Protecting client funds is of the utmost importance to the financial sector, but look at the pressure the NHS has faced over the past couple of years, and they are protecting people’s lives! Sometimes we have to take stock and figure out what is truly important, and for me, when the chips are down, assets and revenues should not be our only priority.
The role of the regulator
Before any regulation or guidance is updated, I would like to see the regulator spend a significant amount of time upskilling its officers to better understand the sector. Even spending time on site at the bigger Fintechs to simply observe how these firms interpret compliance and the unique and exciting ways they go about meeting the standards would be hugely beneficial. Having spent a long time myself auditing in the sector, I have been blown away by the ability of our sector to innovate and replicate. It’s naïve, if not completely wrong to assume our regulator knows everything about what we do and how we do it. I think we need to open our doors to them and educate the regulator on how they can better supervise us. This is mutually beneficial as a more knowledgeable supervisor means more alignment with governance and dare I say, more innovation.
We cannot measure new products and services with old metrics. If there is a disparity in the regulatory approach it needs to be acknowledged rather than simply carrying on doing things the same way, because it has always been done this way. Educating Fintechs and upskilling supervisors so that they are at least looking at the same things in a similar way is imperative. Then Supervisors can figure out the benchmarks for good practice, and regulation can follow. I often feel that as an industry we are slow to react and then are left to make things fit, then we all sit and scratch our heads when we are left with square pegs and round holes and so the cycle repeats.