Fintechs, or financial technology companies, have disrupted traditional financial services by leveraging technology to provide more efficient, accessible, and innovative products and services. However, this disruption has also raised concerns around consumer protection, privacy, and systemic risk.
What is a Fintech?
Fintech stands for financial technology. It is a broad term meaning any technology that is used outside of the traditional financial services like banks and credit unions. Fintech companies are used for contactless payments, mobile apps, online payments, and so much more.
Fintech companies have created a very important role within the broader financial services industry, with many innovative new companies offering cutting-edge solutions for banking, payments, investing, and more.
By focusing specifically on financial technologies, the fintech movement is bridging the gap between the convenience and efficiency of technology and the long-standing safety measures of traditional banking. Unsurprisingly, the fintech industry generated more than $200 billion in new deals in 2021 alone—up nearly 100% when compared to the year before (KPMG). As finance and technology continue to merge, this number will only increase.
While the fintech industry continues to expand, its growth is being accompanied by increased regulatory oversight. Historically, there was minimal regulation governing this burgeoning industry, but now regulators are directing their attention towards fintechs and implementing mandatory guidelines. In order to thrive, members of the fintech community will need to have a strong focus on compliance and digital security, especially regarding the gathering, storage, and distribution of sensitive financial data.
Some potential areas of focus for regulatory changes in fintech include data privacy, cybersecurity, anti-money laundering (AML), and consumer protection. The increased adoption of artificial intelligence (AI) and machine learning (ML) within the fintech industry also raises concerns regarding transparency, bias, and interpretability, which may necessitate the establishment of new regulatory frameworks and guidelines.
The fintech industry is expected to continue to grow. That means so will the ever-evolving regulatory changes. Fintechs will need to adapt to these changes to ensure compliance and reduce risk. And that means a strong compliance training program is a necessity.
What is Compliance Training
Compliance training refers to the education and training provided to employees regarding laws, regulations, and industry best practices. Compliance training is crucial to maintain ethical and legal standards, mitigate risks and avoid penalties, and to promote transparency and accountability.
Accomplishing this will differ between companies. The compliance training program that works best for one firm, may not be the best for another. For example, while some fintech firms (usually larger firms with more employees) will focus primarily on developing an internal compliance department, others might focus their attention on utilizing online courses.
In both cases, investing in compliance training can help employees deliver a better experience to their clients and can also help the company avoid a variety of legal and financial consequences.
Why Compliance Training is Important for Fintechs
Fintech companies operate in a highly regulated industry, and they must comply with a range of laws and regulations, including anti-money laundering (AML), know your customer (KYC), and data protection laws. Failure to comply with these regulations can result in hefty fines, legal action, and reputational damage.
Compliance training is essential for fintech companies for several reasons:
- Stay updated on regulations – Regulations change rapidly. Frequent training helps fintech companies stay updated with regulations and industry best practices. This is crucial, given the fast-paced nature of the fintech industry, and the constantly evolving regulatory landscape.
- Identify and mitigate compliance risks – By understanding the regulatory requirements and potential risks, employees can take steps to prevent compliance violations.
- Better understand their legal and ethical obligations – This is important, as employees are often the first line of defense against compliance violations.
- Build trust with their customers – Compliance is a critical issue for consumers, who want to know that their financial data is safe and that their transactions are conducted in compliance with regulations.
- Avoid legal and reputational damage – Compliance violations can result in significant financial penalties, legal action, and reputational damage. By investing in compliance training, fintech companies can avoid these costly consequences.
Compliance training is an essential component of any fintech company’s operations. By providing employees with the knowledge and skills needed to comply with regulations and industry best practices, fintech companies can ensure that they operate in compliance with the law, protect their customers’ data, and avoid legal and reputational damage. Fintech companies that invest in compliance training will be better positioned to succeed in a highly regulated industry and meet the needs of their customers.
Investing in Compliance Training
Naturally, firms operating in the fintech space will want to make decisions using a rigorous cost-benefit analysis. In order for a decision to be financially justifiable, these firms will want the benefits of their investment to outweigh the costs.
Investing a portion of your budget in a compliance training program is easily justified. According to a study from FMP Global, the total average cost for non-compliant businesses is about $14.8 million per year. This figure is the result of high fines, as well as other indirect costs, such as loss of revenue or business disruption. But there is more than a loss of profit. Some losses can’t be quantified such as a loss of reputation and clients. This will affect future income as well.
Compliance training in finance should be considered a necessary, rather than an optional, component of the industry. Fortunately, the advancement of online courses and other material resources has helped make it easier than ever for fintech companies to secure the compliance they need.
Compliance training has become an increasingly important component of the broader fintech community. Firms that are willing to invest in high-quality compliance training—and make corresponding structural changes, as needed—will find themselves well-positioned for long-term success.
When it comes to training, fintechs have different regulatory and compliance needs. You need a partner that understands this. Contact us today to get the courses specific to your company and industry.