Fintech And Compliance: It's Not One Size Fits All Since most fintech companies in India offer a wide range of products and services across sub-categories of finance, the legal requirements and compliances automatically become complicated

The Financial Technology sector, AKA Fintech has grown manifold and at light speed in the past few years especially due to advancements in technology. Fintech companies have started focusing on specific consumer needs and customizing their services as much as possible. After USA and China, the Indian Fintech market is the third largest in the world. India alone is home to over 2000 Fintechs. Customers now have a variety of financial products to choose from several digital platforms. With this unprecedented growth come risks like fraud, customer data breaches etc. For this reason, Fintechs have come heavily under the scrutiny of the regulatory bodies.

Adhering to a set of regulatory policies, relevant laws, business standards and specifications is essential in any business but more so banking. Fintech companies need to ensure that they follow established guidelines and specifications while exercising caution to protect consumer data.

Keeping this in mind the RBI recognized the need for a separate body to regulate this new and growing industry. In 2018 it setup a Fintech division under its regulation department which was later moved to the departments of payments and settlement systems within the RBI, where most of the RBI activities were regulated. Since then, the RBI has come up with a new robust regulatory framework for fintech firms that it revisits from time to time.

The Fintech regulations landscape

Since most fintech companies in India offer a wide range of products and services across sub-categories of finance, the legal requirements and compliances automatically become complicated and layered during the process. This is why, when it comes to products like payment gateways, digital wallets, insurance aggregators and online loans, there is no such thing as one-size-fits-all. Based on individual tech-based partnerships, each of these services require a tailor-made tech stack as they are also regulated by different entities in India like RBI, SEBI and IRDA. Since the regulatory landscape is fragmented and control over fintech compliance and distributed across many organisations, it's important to have qualified assistance in regards to applicable laws, requirement updates, and possible penalties.

Measures to lower the risk profile of Fintechs

1. Understand the local legal landscape and regulations- New players in the market must understand the legalities and regulations that dictate the lending and borrowing industry in their country of operation as well as the fintech regulations. This will help them avoid future legal complications and give them a chance to benefit from government incentives assured for Fintechs.
2. Business Strategy must align with compliance strategy- Fintechs strive to work on financial inclusion and offer consumers a wider choice of products at the click of a button. While it is important to focus on their business goals, it is critical that the business strategy is aligned to its compliance strategy. For instance when a Fintech is partnering with another company it needs to ensure that its business partner doesn't pose any compliance risks to it.
3. Investment in Technology and early on- As a startup, one often has budgetary restrictions. Companies don't prioritise spending on compliance technology. It is recommended to first understand what kind of technology and investment is required for a solid compliance structure. With advancements in technology in the fintech sector it is critical to understand the key requirements of drawing up a strong compliance framework to mitigate the various risks involved

Fintechs should not view regulations as roadblocks to their growth. It is important for fintech companies to maintain an open line of communication with regulators. Transparency and effective two-way dialogue will help Fintechs integrate with the industry and make it easier for them to comply with an ever-changing compliance landscape.

A fintech's integrity is reflected through its compliance to follow regulations laid out by the regulatory bodies. Enforcing compliance assists the company in preventing and detecting rule violations, which protects the organization from fines and lawsuits, and increases respect and reputation in the eyes of the industry. By having a risk-based approach with tailored responses, a Fintech can safely keep up with the fast-paced regulatory changes in the industry and grow with each passing year.