The rise of fintech is an indication that changes are happening at breakneck speed. With the industry projected to grow exponentially over the next decade, it's no wonder banks and tech companies have been vying for a position in this new world order—but what about regulations? Barriers erected by governments or other entities pose significant challenges which must be addressed before any progress can be made. Licensing issues still prevail across most industries, despite advances being made recently, with technology playing its part.

With the rise of technology and shifting consumer needs, old ways of doing things are becoming obsolete. Open-source software is one such example that has caused a stir in this global economy by allowing more people access to information than ever before while also lowering costs for businesses across all industries—even those dealing with financial transactions like banks or credit card companies!

This change will continue as we move forward into an era where anything appears possible thanks largely due to its ability to give birth to new ideas through innovation; just take electric cars, which have been around less time yet shown greater potential than their gas-powered counterparts already doing laps around town because they're cheaper on fuel consumption rates. and the financial industry is no different.

When it all began, the traditional banking sector was going to be challenged by fintechs. As you can see, they were able to identify and address the unmet financial demands that banks were not aware of (and hence were unable to fill in). However, the existing state of affairs indicates that banks and fintechs will become increasingly linked and interdependent in the future. The emergence of fintechs has grown in line with the advancement of technology.

However, as more and more fintechs start acting like banks, they get closer and closer to being actual banks. It also has a cascading effect, causing banks to adopt fintech practices as well.

Disruptive fintechs may now be disrupted, which is an ironic turn of events. For this reason, the more fintechs get involved in banking, the more attention they attract from the government and, of course, the bad guys. As a result, fintechs must immediately embrace a compliance culture and address compliance challenges while managing risk.

Regulatory Challenges

The new financial order will require a rethink for fintechs. They must establish solutions before incidents occur, or they'll be held accountable when things go wrong.

Fintechs and banks have a lot in common when it comes to fighting financial crime. According to the law, service registration, AML compliance officer assignment, CDD/EDD measures implementation, sanction screening, transaction monitoring, and reporting suspicious transactions to the local regulator. Furthermore, new legislation such as PSD2, 5AMLD, and GPDR is raising the compliance bar every year, and regulatory enforcement is becoming more rigorous, with hefty fines being handed down to those that break AML regulations.

The standards for anti-money laundering (AML) vary by country. One of the most apparent instances in the United Kingdom and Europe. Prior to Brexit, UK companies were required to implement EU AML and KYC requirements. Financial services are now forced to follow local rules and regulations for AML and KYC compliance as a result of Brexit. This is one of the most significant fintech regulatory challenges.

As a result, passports have been phased out across the EU. New considerations for data transfer and protection have emerged, and new standards are now necessary. If a company located in the UK wishes to onboard a new customer in the EU, it must now obtain a license in each EU country and adhere to that country's local rules and regulations.

Fintechs, like banks, must monitor and investigate suspicious activity. Fintechs will need a solid risk management policy when it comes to onboarding customers from other regions to make this happen.

The Benefits of Regulatory Solutions

When it comes to regulations, fintechs face a greater hurdle than other types of startups. Fintech startups must break into a highly sophisticated and regulated market, which impedes growth. The best thing is that there are significant benefits to being ready to comply with fintech regulatory requirements.

  • Global reach: Understanding the rules and regulations in each country is critical for fintechs ad neobanks looking to expand into international markets. It reduces the number of errors, accelerates the formation of true partnerships, and drives more calculated growth.

  • Strategic planning: Consumers expect fintechs to think about and plan for financial regulation as part of their growth strategy. Consumers appreciate this since regulatory compliance can have an impact on a company's business model, so it's critical to think strategically and plan ahead. It makes more sense to expand into one country than another based on the products and services offered.

  • Pick up the pace: One of the most significant worldwide fintech regulatory hurdles is that even when reactions are negative, they take a long time to come. The prolonged procedures shorten the duration of product creation, expansion, and investment strategies. The time and expense of market entry can be reduced by having regulatory solutions available via enterprise-ready products.

Compliance solutions that reduce regulatory and reputational risks are what matter in the end. Fintechs around the world are being penalized for failing to comply with rules, which can harm the company's brand reputation and its future prospects for growth.

Because the financial technology landscape is still relatively young, building trust in it is more difficult. Compliance with KYC and AML laws around the world is made possible by fintech companies that are regulatory-ready.

Fintechs and neobanks alike can leverage regulation as a stepping stone to global reach with the appropriate tools and solutions.