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Typically, fintech companies have some or all of the following features:

  • Technology
  • Innovation
  • Alternative finance

Usually, any financial services company that uses technology in how it designs or produces its products will be classified as fintech.

This category also applies if the company uses technology to deliver its products to clients, or to enhance its clients’ experiences as users.

Therefore, fintech includes an increasingly high proportion of financial services providers as more and more of them adopt new technologies.

The Financial Conduct Authority (FCA) is continuing to develop a regulatory environment around this growing sector.

If you’re a fintech firm, which aspects of FCA compliance will apply to you?

How fintech friendly is the UK?

The UK is widely seen as a fintech-friendly environment.

One reason is due to the Government’s collaborative approach to regulation.

The FCA has several initiatives designed to encourage innovation, by helping businesses test new financial projects.

However, as they develop, fintech companies may find themselves subject to the same regulatory pressures as more traditional financial services.

There are certain areas in which fintech comes under particularly close scrutiny from the FCA:

  • New financial services
  • Protecting consumers
  • Data privacy
  • Preventing money laundering

UK fintech firms must follow specific regulatory requirements for new types of services such as peer-to-peer lending and crowdfunding.

The legislation the Government has in place to protect consumers will always apply to fintech products. 

There is also the second Payment Services Directive (PSD2), which protects consumers when they make online purchases, which the FCA implements.

Fintechs are highly likely to hold large amounts of customer data, and companies will need to make sure they have appropriate procedures in place to ensure their GDPR compliance.

In its anti-money laundering approach, the FCA wants fintech companies to have the necessary software in place that will mean they comply with the 2017 Money Laundering, Terror Financing and Transfer of Funds Regulations.

What are the key fintech FCA regulations?

FCA compliance for fintech companies can be quite complex, since there is no single regulatory framework in place.

Instead, compliance of individual firms will depend on the specific types of activities they are involved in.

The nature, scale and size of their business will also have some bearing on the regulations they come under.

The statutory regulators of businesses providing financial services in the UK are the FCA, under the Financial Services Act 2012.

The key focus of the FCA is on risks that the conduct of financial services firms and individuals within them, pose to three statutory FCA objectives:

  • Protecting consumers
  • Ensuring market integrity
  • Promoting effective competition

The FCA authorises and regulates any firm that carries out regulated business activities in the UK, including fintech companies.

The FCA focuses on conduct risk, while the PRA’s remit is the prudential soundness of financial services firms.

Broadly, the rules are technology-neutral and, as we have already mentioned, the overall environment is fintech-friendly, however, when it comes to Anti-money Laundering (AML), special precautionary measures and restrictions apply.

Anti-money Laundering (AML)

Regulations under the UK’s AML regime, place an obligation on financial services firms, including fintechs, to establish and maintain appropriate risk-based policies and procedures for detecting and preventing money laundering.

Should they fail to detect or prevent situations where their systems are at risk and they could reasonably have been expected to put such systems and procedures in place to prevent this,, it may be a criminal offence.

How do fintech firms become compliant?

Any fintech firm that wants to conduct regulated activities in the UK must have FCA authorisation.

Therefore, the first crucial step in being FCA compliant is to obtain this authorisation.

It requires submitting appropriate documentation to the FCA, once you have established how the regulator will categorise your fintech business.

The challenge for any innovative business in this sector is combining a mould-breaking approach with sufficient risk awareness and control to meet regulatory requirements for authorisation.

Once a fintech company has FCA authorisation, it’s then a case of staying compliant through diligent risk management and putting the right policies and procedures in place that still leave plenty of space for growth and innovation.

Where you have a new business model based on providing a financial service or product, you will need to assess this to see how it will fit into the FCA’s regulatory framework.

Why should you use a compliance expert?

The right knowledge, expertise and insight into compliance and regulation can prove invaluable to fintech enterprises looking to launch and grow their business.

Compliance is not always straightforward, but the Government is keen to encourage innovation and growth in this sector with its support.

Fintech firms can position themselves strategically to take advantage of these initiatives, but they must be FCA-compliant.

We provide specialist consultancy services for fintech firms, including:

  • FCA authorisation and categorisation
  • Compliance consultancy and risk management

For more information, please call us today on +44 (0) 20 7781 8019, send an email to [email protected] or complete our contact form.

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