The complexity and uncertainty of law and regulation poses challenges for FinTechs and other startups in the financial services sector. Early stage FinTechs may structure their business to keep outside the relevant regulatory perimeter, but over time many find themselves within it and subject to some form of regulation. Even if the FinTech remains outside the regulatory perimeter, certain regulations may apply to otherwise unregulated entities operating in the financial services arena. Uncertainty as to the precise scope of regulation creates its own challenges. This means that, one way or another, most FinTechs soon need to engage with the regulatory system and this brings with it risks and costs.
In response, startups must:
- understand the impact of regulation on their business, including the areas of uncertainty;
- develop an approach for engaging with regulators;
- establish legal and compliance functions that define and implement a controls framework that meets regulatory requirements; and
- implement a governance structure to ensure effective senior management oversight of regulatory compliance