FinTech applications are a new word in the financial sector. Thanks to capabilities and technologies, developers are able to offer the market really useful applications and solutions. The most important criteria for such applications:
- Ease of use;
- clear and useful functions;
- the comfort of navigation;
- fast loading;
- attractive design;
- implementation of creative solutions.
Currently, there is a meteoric rise towards fintech app development services by Fireart. And this is not surprising, given that without queues and delays, using only a smartphone, the user has the opportunity to access a wide range of services. For example, pay bills, make a transfer, apply for a loan, or get a preliminary decision on a loan.
Requirements for companies
What regulatory requirements FinTech must comply with depends on the planned range of products and services. In addition, the FinTech status is of particular importance. At the initial stage or at the stage of founding, obtaining your own permission is usually out of the question, since this is associated with:
- high costs,
- structural and personnel requirements,
- as well as additional high capital requirements.
Therefore, fintech software development companies must take into account the legal requirements for actions and opportunities on the part of the regulator.
For FinTech companies that want to work in the financial services industry, there are three main options for offering products and services:
- Freedom of Approval: Exclusively offering products and services that do not require authorization and require minimum or no regulatory compliance.
- Cooperation model – granting a license or otherwise, for example, an umbrella of responsibility: cooperation with a licensed institution or a company that meets all the necessary regulatory requirements.
- Own Authorization: Comply with all regulatory requirements and obtain the required license if necessary.
Offer services without permission
Of course, every FinTech can offer products and services to the financial industry without a license. Accordingly, it is the simplest and possibly the most economical solution, but it significantly limits the range of products and services. Two groups of services can be distinguished here:
- B2C: direct service offering to customers
- B2B: offering (technology) services to other (financial or insurance) companies
- In B2C, this is mainly about sales. Distribution, that is, brokerage and advice on financial and insurance products, can be carried out without permission. This applies, for example, to crowdfunding platforms that are investment brokers.
In the case of B2B services, it can often happen that they are not subject to authorization under the laws on financial or insurance supervision, in particular, if the main service is aimed at optimizing the classic back office services of financial or insurance companies. However, from the point of view of the client as a regulated company, organizational obligations must be respected. This concerns the complex requirements for monitoring risks and organizing business operations, including limited opportunities for (further) outsourcing. Conversely, FinTech is subject to appropriate reporting and verification obligations.
Cooperation model – licensed lending
Instead of its own authorization, FinTech can also “borrow” the required authorization. “Licensing” is often done through an agency agreement with an authorized company (“licensed creditor”). At the same time, there is comprehensive outsourcing of FinTech activities. The regulated company assumes regulatory responsibility and liability, as well as risks, while FinTech takes over the technical provision of the service.
Due to the legal structure, customer contracts are with a licensed lender, so there is limited FinTech wiggle room. Also, it should be noted that if you get your own clearance, all customer contracts must be moved. Nevertheless, licensed lending offers fintech companies a good opportunity to enter the regulated financial market and become active participants in it.
Of course, FinTech can also get its own permission on its own. It should be noted that services within the framework of the permit can be provided only after its issuance. FinTech itself must meet all regulatory requirements for:
- organizational structure (separation of front office and back office)
- and human resources (eg commissioning).
Of course, individual activities and processes can also be outsourced. Accordingly, FinTech also requires other personnel profiles such as money laundering and regulatory compliance experts.
Also Read: How Your Fintech Can Benefit From APIs?