Is Your Fintech Ready to Innovate in Today's Regulatory Landscape?
Federal and state regulators have expressed growing concern about the lack of direct regulation over fintechs, signaling a tighter grip on the industry as a whole. For fintechs, that means it’s more important now than ever to educate and prepare yourselves for possible regulatory changes. And part of that preparation is learning how to work alongside regulators to ensure that fintechs are innovating responsibly.
In our latest webinar, Treasury Prime Associate General Counsel and VP of Compliance Sheetal Parikh spoke with Regulatory Innovation Officer at the Illinois Department of Financial and Professional Regulation (IDFPR) David DeCarlo about how fintechs can leverage regulators as a resource. We explored opportunities for fintechs to proactively reach out to regulators, insights regulators can provide, ways technology can improve compliance, and more.
The Key Takeaways:
- The fintech and bank relationship is relatively new and continues to evolve. While regulators may not always have the answers about how to oversee this paradigm, they are an invaluable resource even in an informal capacity.
- Transparency is crucial. As fintech regulation continues to crystalize, work alongside your bank partner; you’re not in it alone.
- As technology continues to simultaneously improve and complicate compliance, remain vigilant of the risks posed by your product and specifically how it impacts the end-user experience.
- Innovating in this regulatory environment won’t always be clear-cut. Maintaining a close and direct relationship with your bank, keeping an ear to the ground of regulatory changes, and proactively working with regulators can pay off in the long term.
Regulators can be a source of insight and support
Fintechs have a lot to gain by seeking input from regulators. DeCarlo suggested fintechs view local governmental organizations as resources.
“What's actually really unique about state regulators is… we've got the safety and soundness of banks chartered in our state and all those consumer financial protection laws and regulations all being reported up to one person at the head of our agency.” DeCarlo explained. “And that gives us the opportunity to take a more holistic perspective on something like fintech when it's an industry that's rapidly evolving.”
While they cannot offer legal advice, offices of innovation like DeCarlo’s could provide perspective on the regulatory risks and implications of certain use cases and products in areas like lending, for example. Even if the ultimate answer cannot be presented as a simple “yes” or “no,” it can give a company insight into the impact your product has and the challenges your product could encounter.
Treasury Prime similarly encourages fintechs to be fully transparent about their product roadmap with banking compliance departments, which can serve as powerful allies for driving your product forward.
The biggest challenges don’t always grab headlines
Potential laws that directly regulate fintechs — such as proposed regulations on cryptocurrency — tend to grab headlines. However, the more routine regulatory challenges fintechs face also come from grappling with longstanding regulations imposed on partner banks.
Fintechs in the headline-grabbing crypto and digital asset space — you’ll want to pay special attention to this webinar as DeCarlo and Parikh give their take on the regulatory direction of these industries and what these enterprises should be aware of.
In DeCarlo’s view, staying in compliance with bank regulations can be an “everyday challenge” and is “best done on the front end.” In other words, be transparent with your bank. If a regulator is looking at your bank’s activities and has questions about what your fintech is doing, your bank needs to be able to confidently answer those questions and explain why they are comfortable with your activities.
Technology complicates compliance, but it can also help
Fintech is “unbundling” banking into different providers, and “that introduces additional complexity in relationships, vendor wise,” said DeCarlo. It also complicates “who's actually dealing with the customer.”
“At an abstract level, it certainly seems like it makes the job (of a regulator) a lot more difficult,” he said. And regulatory policies and procedures need to be updated in response.
But as fintechs and banks wade through murky regulatory standards, it is also adds more and more responsibility to the fintech to be the first line of defense as they are the face their consumers see — not the bank. Be sure to watch the full webinar to get Parikh and DeCarlo’s advice on how fintechs can take on compliance, fully partner with their banks, and keep pace with regulatory changes.
Fintechs don’t need to be based in Illinois or have an Illinois-based bank partner to connect with DeCarlo and the IDFPR Office of Innovation. To reach the office, email FPR.Innovation@illinois.gov.
To listen to Treasury Prime’s full conversation with DeCarlo, watch the webinar. Interested in learning more about Treasury Prime’s approach to compliance and regulation? Contact us. We also provide more content about compliance here.
The views expressed in this webinar are those of the participants and do not necessarily reflect the views of the Illinois Department of Financial and Professional Regulation (IDFPR). The webinar is informational and is not legal advice; it should not be considered a substitute for legal counsel. IDFPR does not endorse Treasury Prime or guarantee the accuracy of this third-party information.