Disruptors Content

Will regulation disrupt the disruptors?

Fri 09 Oct 2015

Talk of regulatory changes looms over the fintech sector

A primary consideration for any financial technology organisation is driven by the need for banks and other financial services institutions to comply with the ever-changing regulatory requirements that affect business operations. Until now, this hasn’t been as stringent a requirement for technology-led companies; rather more a knock-on effect which companies have been able to skirt around.

However, a recent announcement that global regulators are looking to potentially clamp down on regulatory requirements for technology businesses that provide financial services has thrown a wave of concern across the sector, as the spotlight settles on fintech.

As banks seek to address the evolving needs for greater consistency, governance and control; fintech firms who are employed to implement systems will continue to be scrutinised by regulators. With talks that fintech companies should be as rigorously regulated as the banks, organisations across the sector are bracing themselves for a potential future hit.

Douglas Flint, Group Chairman of HSBC, said in a recent speech at Cass Business School in London: “Regulators all around the world are reflecting on the extent that internet companies are providing banking services and whether they should be regulated as such, or whether they are just providing access to banking services.

“My view is that most technology companies will want to be partners of banks” because they would find the extra “burden of regulation” — such as compliance and anti-money laundering rules — is “not something they want to take on”.

As the fintech industry proliferates, it is venturing into an ambiguous ‘limbo’ area between the banks and the IT sector – a boundary which is being blurred more and more as fintech carves its own niche.

In the US and Europe, Apple has moved into the payments market by launching Apple Pay, allowing customers to pay for items using their iPhones, while Google and Facebook are also building up their financial services offerings. The sector is experiencing rapid growth and a multitude of technology companies have jumped on the financial services bandwagon.

For technology companies, this could prove testing. Banks are seeking protection for their market position against the challenge of technology groups, with the hope that extra regulation will limit the threat of disruption to conventional financial systems. For technology companies though, it provides additional complications to operational processes and could falter the unprecedented growth the sector has seen in recent years.