A Regulatory Framework for Fintech Disruptors

By: KCD PR Editorial Staff

The latest fintech disruptions have led to some of the greatest advancements and transformative businesses of our time. We’ve seen increased automation in trading systems, the rise of alternative financing options like peer-to-peer (P2P) lending and equity crowdfunding, blockchain adoption and a shift toward analytics platforms that help make informed investment decisions.


With these innovations quickly on the rise, it’s clear that the fintech revolution won’t be slowing down any time soon. However, we will likely continue to see regulatory and compliance considerations as an ongoing issue in the space. In recent years, we’ve seen a plethora of financial services regulations and requirements introduced in the marketplace. Specifically, earlier this year, the Office of the Comptroller of the Currency (OCC) released a white paper that set forth perspective on the responsible development of products and services in the financial technology sector. Outlined below are key considerations for the regulatory implications of new technological advances in the financial sector.


Fintech Regulations


Support Responsible Innovation

It’s important to consider improving your business’ internal processes for developing your products and/or services because going forward the OCC will evaluate its guidance on product development and third-party risk management to address the needs of banks and their customers. Startups will now have the option to submit an innovative idea and the regulator will establish a clear policy of assessing these ideas. As a first step in the OCC’s plan, communication (between startups and regulators) is being used as an excellent mechanism for approving new fintech business ideas.

Another idea proposed by the OCC is to allow banks to test or pilot new products and services on a small scale before committing significant bank resources to a full rollout. Such a program could entail board approval and appropriate limitations while safeguarding the interests of external stakeholders and protecting them from further laws and regulations during the testing phase of a new product.


Foster an Internal Culture Receptive to Responsible Innovation

In aims to close the knowledge and expertise gap between startups and regulators, the OCC will evaluate the policies and procedures in place that enhance communication with both external and internal stakeholders of that product and/or service.

Consider building and fostering a more receptive culture and improving the overall awareness of your business’ financial innovations. With more businesses proactively pursuing corporate social responsibility initiatives, you may find employees have a shared interest in a culture that is more receptive and lends itself to responsible innovations.


Leverage Agency Experience and Expertise

The OCC will now heavily depend on the breadth and depth of knowledge of businesses’ employees. Consider developing expertise in this area of your business because regulatory examiners often focus on this considering products or services. One way to do so is to acquire talent specifically focused in compliance. The OCC will assign a designated examiner to every institution under its supervision depending on its size and complexity.

Similarly, as banks progress into new products or services, examiners can be important sources of information. Ongoing communication with OCC staff provides the opportunity for banks to discuss the most recent trends and information that may affect the institution. These discussions also help resolve potential regulatory concerns as early as possible.


Encourage Fair Access to Financial Services and Fair Treatment of Consumers

The OCC will issue guidance on its expectations related to products and services designed to address the needs of low- to moderate-income individuals. As such, responsible innovation is a key focus point among regulators and banks. Financial services organizations should fulfill their public purpose by promoting fair access to financial products and/or services and fair treatment of consumers. Some ways to address these issues include providing online mobile banking and budgeting tools, providing consumer and small business loans, and credit consolidation or refinancing.


Further Safe and Sound Operations through Effective Risk Management

Effective risk management and corporate governance are fundamental for virtually all businesses in developing new products and/or services. The OCC will consider how financial services businesses identify and address risks resulting from advanced technologies. For example, cyber crime is a significant risk facing the financial industry, so consider implementing technologies that help prevent and address potential cyber threats.

Such risk management policies and procedures require a business to perform due diligence and risk identification and measurement in all aspects. The OCC will also continue to monitor emerging risks in the financial industry so placing leverage on internal controls is key to your business’ success.


Encourage Banks of All Sizes to Integrate Responsible Innovation into Their Strategic Planning

The OCC will dive deep and analyze how banks and financial services businesses have integrated their innovative solutions in their strategic planning process. As with any business, sound strategic planning and decision making are crucial to its success. Consider building out business goals and objectives, as well as key performance indicators (KPIs) that meet the needs of your customers. Your business’ decision to offer financial technology should be consistent with your business’ overall vision.


Promote Ongoing Dialogue through Formal Outreach

This comes as no surprise to us: outreach is a key component of responsible innovation. Build a formal communications strategy for touching base with all stakeholders of your business. Communicating that your business is staying abreast of technologies and trends is a sign of responsible innovation, while promoting awareness of your technology. Don’t be afraid to solicit feedback on how your products and/or services can be improved. The OCC will provide resources for business leaders to be a part of forums and workshops to discuss responsible investing for those who want to engage in such discussions. We highly recommend taking advantage of those resources.


Collaborate With Other Regulators

Consider putting your business out there, exchanging ideas and discussing innovation with regulators. It creates open lines of communication and promotes understanding between regulators and businesses. The OCC indicated that such coordination between both parties gives banks and other financial institutions greater confidence when regulators come knocking.

While the growth of fintech is promising, the regulatory environment poses new requirements for organizations, and can be challenging in understanding and managing risks. As your business takes a forward leap in the fintech age, we recommend implementing an internal regulatory framework for your organization that is fit for this era.

Not sure where to start on building an internal communications framework for your fintech business? Contact us and we’ll help set your business up with a sound communications strategy for your internal and external stakeholders.

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