Compliance for Fintechs: Technology and Regulation in the Banking Sector

The number of fintechs has been growing significantly, introducing the market once and for all to the era of digital banks. Created by the absorption of technology (tech) in the structure of the financial sector (fin ), they are revolutionizing traditional banking services. However, despite their business advantages, fintechs are not unaware of the compliance-integrity risks that the banking sector already faces. 

We are talking about bank compliance monitoring and testing for fintechs - a concern that can avoid regulatory problems and economic barriers in the enterprise. Thus, we wrote this post in order to alert entrepreneurs and investors about risks and compliance solutions for the sectorWe will talk about digital transformation in the financial market, about banking competitiveness and, of course, what the legislation says about fintechs. 

How has the digital transformation impacted the financial market? 

Fintechs are companies that optimize services in the financial sector using technology, which has been impacting the market in recent years. 

Usually in the form of start-ups, they have revolutionized banking services, generating facilities and savings for users. 

Let's understand some impacts of the news: 

Increased use of artificial intelligence 

Artificial intelligence (AI) consists, in general, in the use of technologies that simulate the human capacity to perform operations. 

Its application has reinvented the financial market infrastructure, improving the provision of services to consumers. 

We can exemplify its use in operations such as: 

  • possibility of providing loans to consumers who are excluded from traditional scoring systems. 
  • new ways of identifying the possibility or intention of repayment, which reduces the default rate. 
  • calculating loan risk more quickly, fairly and accurately. 

Fintechs, compliance and the development of regtechs 

Regtech is an abbreviation for Regulatory Technology - or “regulatory technology”, in Portuguese - and represents a market that invests and develops technology to improve compliance requirements   

The concept arose mainly due to the advances of fintechs, companies that, despite being disruptive, must follow the regulation of the financial and banking sector. 

The needs gave rise to innovations and technologies that seek to facilitate the compliance of fintechs to regulatory standards, for example, the Central Bank, the CVM etc. 

 

In that sense, Regtechs have the potential to reduce costs, increase efficiency and improve the user experience. And the novelty helps the financial sector not only in terms of regulation, but by preventing money laundering, by automating onboarding and by preventing fraud. 

How can traditional banks compete with fintechs? 

There is no way to stop the technology: those who do not adapt will be obsolete in the market (or will lose a large share of it). 

For this reason, traditional banks are also developing innovations to meet digital demand and, consequently, guarantee their competitiveness. There are large institutions, for example, launching digital banks, in order to simplify the management of money and investments. These technologies use algorithms to understand how the user acts and assist in their decision making. Other banks are launching personalized services, by which users can open digital accounts and enjoy the convenience and agility. 

In other words, in short, all players must absorb technology in its structure and activities, or they will be left behind. 

Banking compliance for fintechs? 

After all, what is compliance for? In a nutshell: to be in compliance. 

This means both complying with regulation and developing an ethical organization, which aims at efficiency in a safe manner. In the case of fintechs and other agents in the financial market, the regulatory aspect of the sector is very detailed about its activities. 

Therefore, industry institutions - such as fintechs - must structure their security policies in accordance with the regulations. Specific registration controls, analysis of the cause and impact of incidents, data traceability, protection of sensitive information - these are many requirements, aren't they? 

For this reason, when preparing its information security policy, it is ideal that fintech has the assistance of professionals who know the details of the legislation. In this way fintech companies have also created a new career option for people working in compliance. Instead of working directly in compliance these people can now help develop the technology that will power the future of compliance 

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