Navigating Regulatory Challenges: Collaboration and Communication Crucial for FinTechs and FIs

In the ever-evolving landscape of financial regulations, collaboration and effective communication have emerged as essential tools for both Financial Institutions (FIs) and FinTech companies. Kim Ford, Senior Vice President of Government Relations at Fiserv, shared insights with PYMNTS‘ Karen Webster, highlighting the shifting dynamics impacting the industry.

Ford emphasized that payments represent a complex ecosystem, where policymakers face the challenge of crafting guidelines that promote competition without stifling innovation. On the other hand, financial companies must find a delicate balance between security, privacy, and usability, all while consumers demand convenience and speed in their transactions.

Historically, many FinTechs assumed that partnering with regulated FIs would exempt them from extensive compliance considerations. However, there is now a growing realization among these digital startups that they need to establish robust compliance and legal functions, whether in-house or through outsourcing. This shift in perspective demands a reevaluation of their risk management strategies, particularly in areas such as fraud prevention, data security, artificial intelligence, and fee structures.

Failure to adapt to these evolving requirements may limit the partnership opportunities for FinTech companies. Ford noted, «There are many FIs that will not entertain any type of partnership with a FinTech if they do not have any type of assurance that there is someone looking at risk and compliance and can be flexible as the environment changes.»

As the regulatory landscape continues to shift, policymakers grapple with the seismic changes in the movement of money and consumers’ increasing desire for control over their data. Educating policymakers about the intricate web of companies collaborating to streamline consumer processes remains a challenge.

While Congress faces obstacles in crafting comprehensive risk frameworks at the federal level, regulatory agencies such as the Consumer Financial Protection Bureau (CFPB) are actively proposing new regulations related to open banking and data usage. At the state level, states like California are leading the way in data privacy and access regulation.

For companies under regulatory oversight, the introduction of new laws can create uncertainty, making it difficult to predict future budgets accurately. Ford highlighted that even for companies like Fiserv, which provide technology solutions to banks and merchants, policy considerations are not straightforward. Despite not being a financial institution, Fiserv is subject to similar regulatory scrutiny, which influences client expectations regarding risk management and security protocols.

Ford explained, «Even though we are not a financial institution, we are a significant service provider, and we are regulated in much the same ways as financial institutions.» This regulatory environment necessitates a commitment to ensuring the security of the ecosystem, with robust APIs and developer tools to prevent vulnerabilities.

Furthermore, Fiserv leverages its lobbying and policy expertise to assist client firms lacking in-house resources to navigate the evolving landscape of financial services legislation.

The successful approach to regulation in the financial industry requires open communication and collaboration between the private sector and policymakers. As Ford aptly stated, «requires communication and collaboration» among all stakeholders to effectively navigate the uncertain regulatory landscape.