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As the old meets the new, how can traditional banks ensure compliance in the world of fintech?

It’s essential that customers of financial institutions save themselves time, find ways to be more efficient and convenient, but also feel entirely secure. This demand has seen a need for faster adoption of new technologies such as fintech, in order to satisfy their customer base.

With the pressure being put onto heavily regulated traditional banks, they are being required to speed up their processes and integrate into the world of digital assets, but still in a safe way that allows the value holder to have their assets protected.

Then on the other hand, with a growing adoption towards developing technologies such as fintech, there is also a need to own better compliance and risk management processes.

When looking at traditional banks or those classed as the new breed of fintech, financial firms are still required to meet the same regulatory standards. Failing to do this leads to hefty fines and legal action.

So the big question is centered around the need to prepare for the future: how can banks keep up with new developments and ensure that they’re compliant?


What does fintech really mean?

Fintech is all about bringing technology to the financial sector in order to improve the services that are offered. Fintech could be something such as developing new ways to accept mobile payments, but it could also involve cryptocurrencies or the use of complex algorithms that allow for robo-advisors. It could also, of course, involve the use of blockchain technology as a way of streamlining the way that payments are made.

The technological revolution has been going on for decades, its just that banks have long been integrating technology to improve their offerings. Now they have fallen behind almost completely.

While traditional banks and newer startups may have the same end goals in sight, the key difference is in the way that they approach them. Traditional banks get left behind and their only means of survival is to partner with someone in the new space of the fintech world. However, compliance is still an ongoing development that traditional banks are navigating.


Who is behind fintech regulations?

The regulators that impose these regulations differ according to the country that a fintech may be operating in. As an example, the UK regulator is the FCA, but there are also rules imposed by the Proceeds of Crime Act 2002.  Across the EU, there are AMLD regulations and these are served by national regulators., such as BaFin in Germany.

Fintech companies aren’t restricted to the services offered by traditional banks. This sees them being involved in areas such as cryptocurrency and decentralized finance. Involvement in these areas means that anti-money laundering comes into play. There are then fintech companies that apply for full banking licenses and in those cases, they face the same regulations as mainstream banks.

What are the most common regulations that impact Fintech?

Certain countries have gone as far as tweaking existing legislation to ensure that it encompasses the changes that have been witnessed. The most common regulations that have an impact on fintech include:



Know Your Customer (KYC) forms a hugely significant part of anti-money laundering regulations. It ensures that companies know the details of the people that they are dealing with and that they are also aware of their financial behaviors. It generally sees basic information being collected such as:

  • Name
  • Address
  • Date of birth

It can also include the monitoring of transactions and numerous types of customer screening methods.


Standing for electronic identification and trust services, eIDAS refers to a range of services that are about verification, It seeks to verify details of individuals as well as those of businesses. It is also part of verifying the authenticity of electronic documents.


The Payment Services Directive Two (PSD2) exists as a way of ensuring that those who provide payment services take steps to improve their customer authentication processes. It also has measures that target third-party involvement. The impact here is for those who run payments within the EU.


Anti-money laundering directives are updated on a regular basis by the European Parliament. In fact, new directives themselves are also issued when appropriate. This regulation exists to prevent money laundering as well as the financing of terrorist groups.


How can banks ensure compliance with fintech developments?

As we have already seen, traditional banks are at a stage where they need third parties who can assist them. When adopting new technologies, and before rolling them out, banks need to be certain that they are meeting the relevant regulatory requirements. The vital point here is that banks need to foster a culture where compliance is king.

With chief compliance officers, there is a need to ensure that they have a real oversight of operations. They also need to be empowered to know that they can make decisions that matter. The holder of this role has to work towards creating an environment where employees for safe and confident. This needs to be to the extent that they are willing to report misconduct, negligence, or any other concern.

It’s also, perhaps, worth bearing in mind that when it comes to reviews from regulators, having well-defined and implemented compliance procedures are acknowledged and almost celebrated. Having these in place are demonstrable proof to the regulators that a firm is acting with transparency and that it is doing all that’s within its power to comply with regulations.

Banks would also do well to embrace regulatory technology referred to as Regtech, this is a way of ensuring compliance while also freeing up vital resources which can then be redeployed.


The question around blockchain

Something that is vitally important to understand is the fact that fintech companies embrace blockchain. They take advantage of what it has to offer by transiting secure and unmodified data across a decentralized network.

The use of ion blockchain can add a greater degree of trust when it comes to financial transactions. Its levels of security are not comparable to anything else, and its transparency is there for all to witness.

With blockchain such a vital part of the future financial landscape, there is one problem to overcome: the fact that regulation needs improving upon. It is therefore vital for institutional investors to examine companies which are putting in the work when it comes to regulation and transparency, to ensure safety within their investments.

The whole premise of blockchain is that it is decentralized and is free from all regulation. Moving away from this would, potentially, be at odds with its original purpose. However, if traditional banks want to keep moving forward, and keep up with the newer emerging banks, there needs to be a solution.

The solution needs to ensure that blockchain remains decentralized. That is, after all, one of its founding principles. Traditional banks need to find a way to maintain this while ensuring that the safety of any value holder is regulated and that there are protections in place.

Blockchain is already proving hugely important in the financial sector, but this is only with the newer institutions. Traditional banks may well be able to move forward with other areas of tech but to stay competitive with the new breed, it needs to ensure that they can fully embrace all that blockchain has to offer.


Final thoughts

The future of fintech, and its use of blockchain technology is assured, with such progress being made and the combined customer base having grown to such a degree.

What remains to be seen is the full extent of benefits that fintech and blockchain can bring, however with developments continually progressing, it’s clear that there are exciting times ahead.

For the traditional banks, yes they have a future, but to secure this future they need to act now.

They need to know their heavily regulated world doesn’t sit cozily with the developing landscape. To survive, there needs to be a willingness to embrace change and ensure that it can still fit neatly within a regulatory framework.