You are currently viewing FinTech, a seemingly simple innovation that induces complex legal challenges

Global warming is considered as one of the biggest issues in our world and it continues to worsen inevitably. In that context, some consider that accelerating financial technological innovation could be a solution among others to limit it. However, for the traditional banking and financial world, “FinTech” rings like a death knell. Yet, in reality, it changes the financial sector with innovative services for individuals and professionals.

 

What is the definition of FinTech ?  

FinTech is a portmanteau of the words “financial” and “technology.” It refers to computer programs and other technologies used to support banking and financial services. Indeed, after the 2008 economic crisis, many bankers and traders decided to leave major financial centers to rethink the financial model through technological innovations. This includes areas such as digital payments, peer-to-peer lending, automated wealth management, blockchain, and cryptocurrencies, among others. The main purpose of FinTech is to simplify, guarantee efficient access, and provide cheaper financial services.

However, the emergence of FinTech can be attributed to various factors. On one hand, it is driven by Big Data and the rise of innovative business models. On the other hand, regulatory changes, such as the Payment Services Directive PSD1 and PSD2 in European Union law, have opened up the market to new players. Since then, banks are now required to enable customers to securely share their financial data with third-party providers, enhancing consumer security.

How does FinTech impact law and regulations ?

Law and regulations play a key role in FinTech. It operates in a regulated environment where legal compliance is essential to ensure investor protection, transaction security, and financial stability. It also poses unique legal challenges regarding data protection, tax compliance, anti-money laundering, and the regulation of cross-border transactions. That’s why it is important to know how to navigate this complex regulatory landscape while innovating and remaining competitive. The adaptation of laws to accommodate new financial technologies is then required.

Consequently, the impact of FinTech on law is significant, challenging existing regulatory frameworks. FinTech can change how transactions are conducted, data is managed, and privacy is protected, necessitating legislators to craft new laws or revise existing regulations to keep pace with technological innovations. Moreover, the increasing complexity of FinTech products and services may lead to more legal disputes and challenges for courts and regulators tasked with resolving them. FinTech also influences how law is designed, interpreted, and enforced in the financial domain.

Does FinTech offers a viable solution for the future ?

Even if Financial Technology has an enormous potential to transform the way financial services operate, it can also bring unintended risks, especially for financial firms. For example, banks need to consider how their compliance risk management processes ensure FinTech doesn’t become a tool for fraud, money laundering, or funding criminal organizations. The adoption of “RegTech”, or more precisely Regulatory Technology, has provided advanced risk assessment and monitoring capabilities, minimizing financial misconduct and improving the stability and profitability of the banking industry. Investing in this technology can automate data analysis, optimize efficiencies, improve accuracy, and help reduce operating costs. It also aims to meet regulatory requirements and compliance, such as anti-money laundering and data protection.

 

Therefore, it is evident that FinTech’s impact on law in general, and banking law specifically, is multifaceted, influencing various aspects of the regulatory landscape and the way financial institutions operate.

 

List of references :

Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC

https://eur-lex.europa.eu/eli/dir/2007/64/oj

Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32015L2366

https://legal.thomsonreuters.com/en/insights/articles/are-banks-prepared-for-the-demand-of-fintech-regulation

https://www.planet-fintech.com/attachment/2268492/

https://www.fintechfutures.com/2024/02/european-parliament-authorises-new-regulations-for-instant-money-transfers/

https://timreview.ca/article/1481

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