FinTech 2018 – new beneFits and new accompanying challenges
The innovations and the applicability of technologies in the way how people do business is continuing to grow explosively. In 2017, we have witnessed a blast of FinTech in the mainstream media and its final establishment in every-day communication, utility and business. Even though, the News & Media have mainly covered the excitement over the record values of cryptocurrencies, FinTech is growing in all of its variety and will have a larger impact on business in 2018 than ever before.
However, the utility of many FinTech innovations surely disrupts the incumbent models of doing business and requires from the service providers swift adaptation to fully take its advantage. Also, the legal advisors must adapt even though they often deal with outdated regulations as the legislator could not have possibly foreseen the impact of FinTech on financial services, banking, insurance technologies and of course cybersecurity. We continuously work and make sure to be well informed on the latest trends in the FinTech industry both domestically and globally.
Some of the liveliest areas of FinTech in 2018 are:
• Cryptocurrency and digital cash
• Open banking
• Unbanked/underbanked financial services
CRYPTOCURRENCY AND DIGITAL CASH
Cryptocurrencies and digital cash are disrupting the financial sector and represent much more than a fast way to make profits by speculative trade. Authorities have lately decided and promised to regulate the use of cryptocurrency in relation to financial transactions, payment services and its tax treatment. The final impact of the regulatory aspect on cryptocurrencies may in the worst case scenarios initially crush the trade value of cryptocurrencies, yet cryptocurrencies will surely remain to be attractive in the coming years.
We are taking an active role in shaping the future of cryptocurrency markets from the legal perspective to mitigate the risk of trading with cryptocurrencies or being a victim of fraud, as well as safeguarding the personal data of cryptocurrency traders, cybersecurity and transactions’ credibility.
The Directive 2015/2366/EU 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, The Payment Services Directive (“PSD2”) partially entered into force in January 2018 and has transformed the EU retail payment market and managed to introduce higher security standards for online payment services and new providers in the market, such as FinTechs.
One of the aims contained in the PSD2 is to promote the development and use of innovative online and mobile payments through open banking. Open banking is a system that provides a user with a network of financial institutions’ data using application programming interfaces, known as APIs.
The data is created, shared and accessed continuously during the provision of financial and banking services and, with the use of technology data, is processed in higher volumes and in more ways than ever. Taking that into account, with the entrance of the General Data Protection Regulation (GDPR) into force in May 2018 data security is mounted on a completely new level.
Therefore, the open banking as a major source of innovation in the banking industry with the use of technology must be in conformity with the regulatory requirements in relation to data processing and cybersecurity. The year 2018 represents a new page in relation to general payment services and data protection in the European Union, as well as in other legal systems that are taking the same direction.
The strong support for innovation and the use of technology in the financial and banking sector must go hand-in-hand with the importance to operate within a fully functional legal framework protecting personal data, security standards and the stability of the financial sector.
The participants in the financial sector will have to, even more than before, keep an eye that the daily changes and updates of technologies remain in conformity with the applicable regulations and to secure that their business activities respect the rules laid down by the regulatory authorities.
RegTech is a new stream within the financial services industry that overcomes the regulatory challenges of providing technology-driven services through automation. FinTech largely drives a more efficient and more effective way of doing things, while RegTech ensures that the practices remain in full conformity and compliance with all the rules, regulations and guidelines.
RegTech has a transformative potential to optimize the regulatory monitoring, transparency, data protection and may potentially result in a new regulatory framework within the financial sector. Still, RegTech must keep on track with the positive legislation and the aims that wanted to be achieved, which has to be interpreted correctly.
In 2018, we expect that RegTech is going to exit from the shadow of the hype around cryptocurrency and other more sound-catchy fields of FinTech. RegTech may ensure that the provision of services, with the support of legal advisors, successfully tackles different issues, such as legislation gap analysis, transaction monitoring, the supervision of the financial sector and anti-money laundering.
UNBANKED/UNDERBANKED FINANCIAL SERVICES
Today in the world more than 2 billion people still do not have any access to financial services or their own bank account. But due to the rapid development and digitalization of the provision of financial and banking services, the current infrastructure becomes obsolete and the accessibility of financial and banking services becomes higher than ever.
In 2018 cloud computing, mobile banking and data analytics are continuing to grow and become more complex resulting in the outsourcing to third parties and the provision of financial services on aSoftware-as-a-Service basis. Regulators have always been careful when it comes to outsourcing rules in the provision of banking and financial services.
The emergence of micro-credit and micro-finance institutions, as well as supporting FinTech companies rendering outsourced services, based domestically or internationally, result in the provision of a wide range of financial and banking services. The emergence of new types of institutions and services require the continuing compliance with all the applicable regulations of the financial and banking sector. All participants in the financial and banking sector must maintain a strict policy on the compliance with the applicable regulations, personal data protection, supervision of outsourced services as well as cyber defenses and tax issues, especially in 2018, when it is expected that more financial services than ever before shall be rendered as a Software-as-a-Service by FinTech companies.