A recent blogpost by OneSpan has scrutinised whether regulations in FinTech have been able to able keep up with the ongoing and fast-paced innovation in the sector.
Key technologies like cryptocurrency, biometrics, blockchain and AI have all made their mark in the FinTech market, however there is growing challenges for regulators to keep pace with these changes – with much regulatory change often hamstrung by lengthy and cumbersome legislative processes.
Additionally, the rapid growth of innovative and exciting technologies often comes those looking to exploit it. Unregulated technologies in areas such as biometrics and AI can create a wild-west atmosphere, pushing issues such as illegal surveillance and racial discrimination and being rife with fraud and scams.
OneSpan commented that alongside regulators, banks are also struggling to navigate the ever-changing and convoluted landscape. The company noted that while such new technologies will boost profits, spur competition and attract new customers, this must be balanced with appropriate cybersecurity, data protection and AML standards.
Where is this clash of requirements most prevalent? According to OneSpan, this goes to AI. Research by the OECD previously found that AI startups received over $75bn in venture capital funding in 2020 – with PwC predicting AI could bring in $15.7trn to the global economy by 2030, with China and North America blazing the biggest trails.
The company noted that 2021 had seen progress in this area – with Lynne Parker – the US’ first AI czar – being tasked with tackling the societal risks stemming from AI, while the White House’s Office of Science and Technology Policy is looking to create a bill of rights for an automated society.
The rise of cryptocurrency and blockchain projects are also climbing in popularity, with the ease of transactions and pull of steep returns proving to be seductive for a growing number of the population. The popularity is also driven by crypto’s ability to be more accessible to unbanked individuals, as well as its growing support in regions that have low public confidence in central banking and high inflation, such as Nigeria and Venezuela.
OneSpan noted that this surge is usage has led governments to become weary about crypto’s role in illegal activity and its threat to monetary authority. However, the firm highlighted that regulatory activity has so far failed to keep up with the fast-accelerating industry, with regulators struggling to formulate a ‘cohesive response’ as priorities clash and legislative processes lag.
OneSpan said, “One of the biggest roadblocks to regulation is crypto’s technical architecture — its decentralised and distributed nature makes it uniquely transnational, leaving it difficult for a single jurisdiction to impose regulations. International collaboration and standards will be crucial in establishing an enforceable crypto framework, especially regarding increasingly international crime like money laundering and the financing of terrorism.”
The company remarked that different regulatory approaches across the US have proven to be confusing and often unworkable for crypto, creating a fragmented approach across the country – noting that this regulatory uncertainty ‘remains the biggest challenge to the crypto industry as firms struggle to understand compliance requirements and balance those with innovation initiatives’.
With digital transformation abound, many banks are left wanting when it comes to balancing a stable and evolving regulatory environment and digital transformation. Research by OneSpan in October last year found that 48% of bank leaders and executives reported industry regulations have slowed progress in banks’ digitalisation, with smaller banks struggling with compliance.
Despite this, OneSpan highlighted that many banks are readily adopting innovative technologies like digital remote identity verification and biometrics for compliance purposes. The firm said, “As the technology and financial crime landscapes undergo fast-paced developments, regulations and standards will have to constantly evolve to accommodate these changes.”
To read the full blogpost, click here.
Copyright © 2022 RegTech Analyst
Copyright © 2018 RegTech Analyst
