Our senior associate at Grupo Corporativo y Negocios, Vicente Martínez, spoke to El Mercurio about the importance of compliance in fintechs and the challenges posed by its implementation.
The advancement of the sector poses new challenges in terms of compliance with a regulatory framework that is still being configured, and changes from one country to another.
In an increasingly dynamic and regulated environment, compliance is key for fintechs, “as they operate in a sector that disrupts traditional financial services. They must comply with regulations related to payments, lending, digital banking, cryptoassets and crowdfunding, often balancing innovation with risk management,“ Leila Search, regional Fintech leader for Latin America and the Caribbean at the World Bank Group’s International Finance Corporation, tells ”El Mercurio”.
Vicente Martínez, senior associate at Albagli Zaliasnik, highlights the importance of compliance in fintechs, since “they operate in a highly regulated environment and their regulations have undergone many changes in recent times, both in Chile and in other countries”.
Compliance in fintechs takes the form of various practices and regulations that ensure transparency: data protection and the prevention of money laundering are fundamental; sector-specific regulations – such as electronic payment standards – and other online or cryptocurrency regulations. And credit, market and technology risk management, says Martínez.
Financial compliance in fintechs “involves the implementation of a set of policies, procedures and controls designed to ensure compliance with applicable regulations, protect and inform consumers and to maintain the integrity and trust of the financial system in these new players,” adds Esperanza Gómez, manager of Financial Risk and Regulatory Affairs at Deloitte.
Challenges and opportunities
On the challenges for the industry, Search highlights the evolution and adaptation to regulatory changes, which in many countries are still being defined, “which generates uncertainty”. Another challenge is cross-border compliance, since “fintechs that operate in multiple countries must navigate through various jurisdictions with different requirements”. Added to this is the cost of compliance and implementation of technological solutions and the requirements arising from increasingly stringent local data protection and cybersecurity laws.
Vicente Martínez adds the high costs of implementing these compliance programs, “especially for fintechs in the initial stages”, as well as the need to balance regulatory compliance with the agility and capacity for innovation inherent to the sector. In addition, in terms of cybersecurity and with the rise of cyber-attacks, “fintechs must invest in robust measures to protect their clients’ data, as well as adapt to new technologies and adapt to regulatory frameworks,” he says.
Regarding opportunities, Matías Aránguiz, professor at the Catholic University Law School, stresses the need to implement compliance in the early stages of business development and adds that “although an important part of compliance is related to training and education of human capital and review of processes, much of the monitoring of events can be automated, which means significant savings in time and resources”.
In Chile, Martínez highlights the role of the Financial Market Commission (CMF) in the implementation of specific regulations for the sector, as well as requirements for the prevention of money laundering and the financing of terrorism. “In addition, public-private collaboration has been fostered to strengthen a flexible and effective compliance ecosystem,” he says.
Strengthening governance
Search, meanwhile, highlights progress in adapting to the Fintech Law. “Many companies have begun to integrate automated KYC (know your customer in Spanish) and AML (anti-money laundering) solutions to strengthen their governance.”
Regionally, he highlights examples such as Brazil, “a leader in fintech regulation in Latin America, with regulatory sandboxes, principles-based regulation and inclusion policies designed to foster competition in the financial sector, including new fintechs.”
