The fintech market has been booming lately, with more tech companies clambering to bring the financial sector into 2022. This is an exciting time not only for finance but for fintech companies, developers, and investors that are driving the sector forward.
Working in fintech has never been more dynamic and exciting, but it does come with a significant barrier. Namely, the financial regulations and the associated financial and legal issues that come with the territory.
As it turns out, people take money seriously!
Of course, working within finance comes with regulatory standards. For the tech community, staying compliant with these regulations is a tight-rope act. That's what our CTO Nazariy Hazdun reflects on in his new article on Forbes.
As an aspiring fintech company, investor, or developer, fintech regulations are not exactly the most exciting challenge you’ll face. Fintech is a rapidly developing space, with plenty of excitement to go around. It’s essential to understand the core fintech legal issues to reap the rewards fintech offers. The three key areas are:
You may have already picked up on one of the complexities around fintech laws and regulations. Namely, there is not strictly a single overriding body of laws and regulations. Each major territory has laws specific to it that make the standard that needs to be met different, depending on where the parties are located. There is a lot of crossover in the different agencies and regulations, but at first glance, it might feel like a tangled web of bureaucracy!
To help you get a grip on the landscape, we have given a run down of the major regulatory bodies in the key territories.
The Conference of State Bank Supervisors (CSBS). The CSBS has been around since 1902. However, it is only in recent years that it has become involved in an attempt to standardize some of the licensing for fintech. This is a problem unique to the US, where different regulatory compliance standards exist in different states.
The CSBS started the Vision 2020 initiative to bring some unity to licensing and has had major success, lowering the barrier for entry for financial companies offering new technologies in the US.
In the US, there are also specific laws that control financial areas:
Okay, that’s a lot to take in already. Luckily, in most cases, you will only need an awareness of these different governing bodies, laws, and standards. It is unusual for a fintech startup to operate in all these territories and come up against all regulations.
Before we look at some specific licensing examples, let’s take a moment to delineate some of the core areas of fintech.
We are going to run into the same problem here that fintech companies have in general when it comes to regulations. Namely, the rules change from place to place!
For example, in the US, state bank supervisors are a factor. However, there are some universally applicable truths.
Even conservative banks are undergoing digital transformations, but smaller, newer banks are being developed or already in operation that are luring customers away due to the benefits that come from their digital nativeness.
As we have seen, there is a lot of movement in the available tech-based payment systems. In the UK and Europe, there are dedicated organizations that can guide you around payment system licensing. In the US, this is covered, ultimately, by the CSBS.
So you will need to jump through some licensing hoops if you want to expand consumers’ ability to shop from the comfort of their homes, pay their bills on smartphones, and the like. But the rewards can be substantial, as this is a popular area of development; you just need to follow consumer protection laws.
As stablecoin is often pegged to a commodity or currency, it is more likely to require some regulatory compliance for new fintech. Blockchain, in general, continues to be a rich ground for development. The Stablecoin Trust Act was created by the government to regulate what commodities can be tied to crypto.
Geniusee Financial Software Development Services are designed to give any prospective fintech company the technical capabilities to realize its potential. This isn’t just about code; this is about bringing together a diverse yet highly connected set of skills and experiences to deliver a peerless and compliant end result. These services include:
With Geniusee at your back, you’ll have the technical clout to deliver your vision with confidence.
More organizations are looking to fintech as a fertile ground for technical development. This is totally appropriate, as consumer expectation, blockchain technology, and globalization create a need for the digital transformation of legacy institutes and for new, agile fintech companies to change the landscape.
However, for startups or companies that have had success in application development in the past, fintech offers a unique challenge. The regulations are complex, and the bodies that enforce them are far from toothless. These aren’t guidelines; they’re laws!
We have seen how fintech laws and regulations change depending on the country and the nature of the operation. In practice, most fintech companies will need to become experts in the specific regulatory practices of their chosen area—or else risk failure.
It is easy to get carried away with the big idea and overlook the (admittedly) tedious minutiae of financial regulatory compliance. However, apart from the mere need for compliance, these laws and regulations are ultimately a force for good, allowing companies to compete fairly, facilitating tax compliance, and mitigating the risk of money laundering. All help ensure financial stability, which is essential for the success of fintech.
If you need help or would like to learn more about building a neobank or implementing a payment system, contact Geniusee today.
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