New Fintech Regulations and Climate Change of 2023

The last few months have been hectic for fintechs. With booming economies, waning interest in investments, and an extremely long crypto winter, change has become a familiar state of being.

But, as the industry continues to mature, more changes are expected – this time in the form of regulations that will seek to stabilize and secure fintechs by building trust in the space.

Here, we look at the four main fintech sectors that should be subject to new regulations.

Cryptocurrency and DeFi Regulatory Changes

Since US President Joe Biden formalized his intentions to regulate cryptocurrency and the decentralized finance space in 2022, there has been much debate about exactly How? ‘Or’ What such a task could be carried out without compromising the privacy and autonomy of the space, which have made it so popular with investors.

James Corcorandirector of growth KX, explains the dilemma. He says a common concern in the industry is that once regulators and additional technology get involved in the crypto ecosphere, innovation will slow down.

“Regulation is inevitable – says the IMF crypto assets are no longer a niche and regulators need to catch up. The European Central Bank has urged eurozone countries to harmonize different rules regarding crypto regulation before EU-wide laws come into effect at the end of 2023. The United States is also doing push for more regulation, with the US Treasury encouraging new laws to close loopholes in crypto regulation. .”

He continues, “When you boil everything down to the bare essentials, the fundamentals of crypto trading are similar to how traditional financial markets work. The introduction of regulation will bring more stability, security and efficiency, which arguably will lead to more – not less – innovation, competition and choice. Better oversight and governance will also bolster its role as an additional form of currency, silencing skeptics who say it’s like the Wild West.

“Ultimately, it’s about giving choice and security to existing players and new entrants to the market.”

More regulation of incumbents in the digital space

As cyber threats soar and security becomes an increasingly important concern, traditional financial institutions find themselves disconnected from the latest innovations, technologies and regulations needed to secure their systems. Jurijs Borovojs, CTO of Transact365explains that 2022 has been particularly eventful for traditional financial institutions.

“On the one hand, we have seen large legacy institutions punished for a lack of compliance and due diligence; as was the case with Citi Group’s £12.5m fine for failing to effectively monitor trading activity and the £63.9m fine for HSBC, which had under- performed in its anti-money laundering due diligence.

But he points out that traditional financial institutions have come to the aid of countries with increasingly unstable economies – including the intervention of the Bank of England after the price of the pound sterling fell following government announcements of tax cuts .

“Companies and customers are struggling to maintain trust in traditional forms of funding. For these institutions, it is important that they quickly rebuild that trust or risk increased penetration of the alt-fi market. alternatives like cryptocurrency had remained more consistent in 2022, we may have already seen a surge in alt-fi adoptions.That being said, the crypto sector has rebounded nicely, opening up new opportunities for growth, increased awareness and trust from people whose trust in trad-fi institutions has diminished.

He adds: “These dynamics have a direct impact on the consumer, who is caught between a rock and a hard place as to who to trust when investing their assets. The stakes are particularly high in 2022, with the cost of living crisis present in the UK, meaning that smart investments and security are of the utmost importance.

Anti-fraud regulations for the banking area

As part of a campaign to prevent rising fraud rates in the financial space, the UK – the world’s second largest fintech hub – is considering the introduction of a national anti-fraud strategy. against fraud.

Responding to Labor Party calls for a National Fraud Strategy Daniel Holmes, Fraud prevention for SMEs in Feedzaiexplains that such a decision is necessary because losses due to fraud continue to increase year after year.

“Money lost to fraud and scams has long been cited as a national security risk, but now more than ever, as we enter more and more economic difficulty, it is becoming increasingly clear that the impacts on consumers themselves are just as devastating.”

He continues: “Banks generally bear the bulk of the burden of regulatory change, but the proposed legislation should not overlook the fact that there are many other parts of the payments and digital ecosystem that play a key role in a scam. ”

Holmes goes on to explain that the last Payment Systems Regulator (PSR) Regulation announced in October is a positive step in the right direction, as the proposed changes will force banks to work more collectively than ever before.

“If the proposed settlement goes ahead, consumers will have better liability protection, which means they will be out of pocket less often. Additionally, banks will need to fundamentally rethink their approach to monitoring not only payments leaving their bank, but also payments they receive.

Buy Now Pay Later (BNPL) to comply with the new rules

The largely unregulated BNPL space has been navigating through turbulent waters lately. With rising inflation cost of living, the post-pandemic economy sees more and more people turning to loans, and

BNPL should figure prominently as consumers reduce immediate spending and turn to it as a mechanism for essentials.

By mid-2023, suppliers will face stricter regulatory procedures. The new guidelines will require BNPL providers to carry out thorough credit checks on consumers to ensure they can afford to take out loans. Additionally, lenders must also be approved by the Financial Conduct Authority.