Here’s a small kernel of life advice: every so often, a human being should take the opportunity to zero in on the small-to-large ripples of change that manifest in larger society. Few people cross from one decade of life to the next having taken some time to stop, probe, take stock and appreciate the fact that they could be living in the midst of a great revolution.
Have you realised you are living in the midst of one such revolution? The fintech revolution? Here, we probe the answers to four questions about this fascinating change, helping you understand your singular impact on society as a compliance officer.
What is Fintech?
Fintech is short for financial technology, a term that encompasses all innovative technologies that address the design and delivery of financial services and products. Fintech is used by a myriad of players who offer products and services in the categories of loans, advice, payments, investment management, and more.
Today, many companies in fintech depend on mobile-device technologies, big data, and grade-A analytics to customise products and services for both consumers and companies, alike.
Bank executives tend to know that entity success hinges on technological prowess, as an obvious primary duty of theirs has always been to record and safeguard “big” customer identity data. Today, these details are often collected through Know Your Customer (KYC) and Customer Due Diligence (CDD) verification methods and systems.
However, the fintech revolution has placed technology at the very centre of financial services delivery, having changed the everyday interactional relationship between the financial institution and customer, forever.
What are its benefits?
As devices and technologies continues to evolve, the ongoing fintech revolution essentially promises to make access to financial services and products easier and better than ever before.
In addition, it has importantly heightened competition among financial entities, making it so that customers today pay lower fees and prices compared to yesteryear.
Moreover, the UK lower class, in particular, are today able to regularly access financial services (mainly through the inexpensive mobile phone) when, previously, they had greater difficulties being able to stay up-to-date with their financial matters due to a lack of access to the Internet.
This penetration of a previously difficult segment of the population to reach—the poor and underprivileged—has allowed this group to access essential everyday products and services more now than ever before, with the help of fintech services. This further stimulates the economy and decreases poverty.
A deeper explanation: the fintech revolution—particularly via mobile apps—is helping the poor and underprivileged collect money from services they can perform, for e.g., paid social media management, through the owning, and using, of inexpensive smart devices. In other words, the combination of an availability of cheap devices and fintech’s ease of use has directly led to greater overall financial inclusion, even greater employment.
As a result, by helping to create reliable payment methods, fintech is ultimately helping to create a higher standard of living for the previously unbanked. For example, the more income fintech helps a poor person collect, the more likely he or she will save to eventually buy a high-quality work computer that enables that same person to acquire higher paying work.
What are its disadvantages?
Rampant financial crime statistics in recent years indicates that the easy digital access to financial information and money assets guaranteed by the fintech revolution means hackers and criminals can increasingly prey on citizens.
Indeed, stricter anti-money laundering (AML) and counter financial terrorism (CFT) controls enacted since the Financial Crisis of 2009, which wrecked billions of pounds of assets of the greater public, are especially expected to be followed in the years since the meltdown, as talks of industry ethics continue to fuel adverse emotions, as well as haunt both supper table conversation and the public memory.
“A financial crisis: never again,” is an oft-repeated watchword the public has sought to communicate to government leaders through the ballot box, as well as ongoing activist campaigns. Indeed, emotions and tensions continue to run high as the public continues to wrest with their deeply wracked feelings over the Financial Crisis of 2009.
This emotional resentment has inflated and fuelled the presently high level of regulatory expectations slapped on financial entities by government regulators, still criticised by the public for not having been “tough-and-cuff-enough” against financial crimes in the years leading up to the 2009 meltdown.
Banks have been complying in the years since 2009 but have only lately begun to express concern over the high expenses caused by the ongoing pandemic years, and the recent slapping of stiff sanctions on major power player Russia. This concept, particularly in connection to sanctions enforcement by the sector, was wonderfully explored by UK financial crime prevention expert Martin Schofield in a recent webinar released by the AGRC, here.
How is fintech regulated?
Fintech regulations are currently being debated; yet, because fintech start-ups do not operate like a traditional insurer or bank, they are not exactly subject to the same controls and regulations that traditional financial entities must be made to implement. As a result, only the latter group—insurers, banks, and asset managers—are held liable for any failure to implement a solid compliance programme.
Nonetheless, real efforts are being made by policy leaders to understand fintech models and landscape as they evaluate revising the existing supervisory framework to include modern-day fintech disruptors. Such policy leaders say they wish to strike the right balance between financial stability and innovation, and yet the debate continues as to whether fintech should be regulated as much as traditional entities in the first place.
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