Over the past year, there has been an increase in regulatory compliance hiring and budgets across the crypto and fintech business sides. It is easy to see why; regulatory bodies worldwide are increasing regulatory scrutiny for crypto and fintech businesses. Another reason crypto and fintech businesses are focusing on compliance is that they want access to traditional banking and investing channels. As expected, technology is being used heavily by both businesses; fintech and cryptocurrency have IT operations at heart, which increases the likelihood for them preferring technology that enables automation.

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Challenges for Crypto Businesses

Cryptocurrency markets pose a significant challenge for financial regulators across the world. Financial regulators have been monitoring banking channels to curb financial fraud, money laundering, and much more. The increased focus on anti-terrorism over the past two decades has also put much more emphasis on curbing the financing of illegal activities through money laundering. The problem that regulators have is that crypto transactions are outside their purview. The numerous controls that financial regulators have placed in the financial system – monitoring large transactions, KYC policies, blocklists, preventing cash from being carried on airplanes – can be easily subverted through the crypto market.

Governments are increasingly taking the position that crypto transactions should be treated like any other transaction in the financial system. If a person sends money to another person, it should be monitored so any money laundering, illicit funding, or financial fraud can be caught.

Increasing Crypto Opportunities with Regulatory Compliance

The challenge of regulatory compliance may seem like a significant problem for crypto businesses, but in reality, this is an excellent opportunity for them. Most traditional investors in the market are being very cautious with crypto. Most crypto financing happens through customers going to commercial cryptocurrency markets and buying or trading cryptocurrency in small quantities. Banks, investment houses, venture capitalists, and other such parties that control billions if not trillions of dollars in funding are either avoiding crypto markets or only investing a tiny amount in testing the markets. Their main concerns remain the unregulated nature of the crypto business.

Increased focus on regulatory compliance will open these new avenues of funding for crypto businesses, giving them access to a lot of funding and expert business advice and consulting from significant players in the industry.

Compliance technology can help crypto businesses quickly understand the regulatory compliance environment. Compliance platforms are a codified form of the compliance framework – in other words, they make it easy for the tech sector to ensure compliance by translating compliance to computer programs and prompts. Instead of poring through hundreds of legal documents, the employees can understand what is needed in the compliance platform.

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Challenges for Fintech Businesses

Fintech operations enable new and innovative financial channels and have been fully embraced by people across the world. The problem is that Fintech operations often have to limit their services because of regulations; engaging in certain business activities will make the businesses liable to follow strict financial rules, which will slow down their operations and increase risks. Many fintech businesses are overcoming this challenge by partnering with traditional banks. Such partnerships hold a lot of promise; they enable fintech businesses to remain focused on their innovative service delivery and give customers more options and functionality by offloading certain transactions and actions to the traditional banking channel.

Banks and other traditional FIs are well-versed in regulatory compliance because they have been dealing with financial laws and regulations for multiple decades. Fintech businesses are not experienced in regulatory compliance and often struggle with it. Banks cannot increase their risk exposure by working with companies that cannot abide by financial regulations. Even third-party vendors must strictly comply with many financial regulations, and such vendors are nowhere near as intertwined with the bank as fintech operations need to be.

Increasing Fintech Opportunities with Regulatory Compliance

Fintech businesses that can deliver services while also complying with financial regulations have a lot of opportunities available to them. Banks do not want to lose customers to fintech businesses, which is why they prefer to partner with a fintech to deliver innovative services while still acting as a traditional bank themselves. Fintech businesses that can demonstrate their commitment to regulatory compliance and show banks that they have a robust regulatory compliance platform implemented with the appropriate controls will be sought after by banks looking for fintech partners.

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Interested in seeing how your business can benefit from compliance technology? Get in touch with our experts for a demo of how Predict360 can help banks and fintech partners.