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NEWS


Fintechs will be derailed by lack of governance, warns FSCOM chief


F


intech start-ups are rushing headlong into legal problems in their anxiety to be first to market, warns a top compliance expert. Maximum growth with minimum governance will be a disaster for many in the fintech industry, according to Jamie Cooke, CEO at financial services compliance consultancy fscom.


Ignorance of compliance could see fintech start-ups die through either prosecutions or the withdrawal of their banking partners.


Too many start-up fintechs at MoneyConf in Dublin seemed to be focused entirely on platform development at the expense of legal foundations, said Cooke.


Most start-ups are run by CEOs and CTOs with no compliance knowledge. They only focus on compliance after the venture capitalists get involved, by which time meeting all the relevant regulations becomes a lot more expensive and complicated.


To make matters worse, the past 12 months have seen an unprecedented amount of new regulation, which even corporate fintechs struggle with, said Cooke.“In 15 years I have never known a period with such significant regulation. The introduction of


MLD5, PSD2, MiFID2 and GDPR has made staying abreast of these regulations a challenge. Not to mention Brexit.”


As a guide to fintech entrepreneurs, fscom has published the most common shortcomings exposed by its audits. These include the failure to use controls that mitigate the risk of a compliance procedure failing, lack of internal compliance monitoring, terrible policy documentation and inadequate compliance management information.


Fintechs with poor compliance and governance risk losing their banking partner, said Cooke. By necessity, banks are applying an even higher standard of compliance than the supervisory authorities. Having client trust accounts with an EEA banking institution is a condition of authorisation, so fintechs can quickly find themselves exposed.


Securing investment is another major concern. “Having been involved in some large regulatory due diligence projects for private equity and venture capital firms in recent months, it is clear that compliance with regulations is a critical point of consideration for these firms,” said Cooke.


Europol makes 95 arrests in 28 countries over fintech fraud


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n a joint operation between the banking industry, Europol and police forces in 28 countries, a total of 95 arrests were made for online fraud between 4-15 June. Suspects are


to be interrogated over 20,000 fraudulent transactions using compromised credit cards, with an estimated value exceeding €8 million (£7 million).


UK operations were led by the Dedicated Card and Payment Crime Unit (DCPCU), which executed nine search warrants across the country. There were four interviews under caution and two arrests – one in Bolton and another in London.


Searches unearthed devices used to commit remote purchase fraud. The DCPCU says that ‘valuable intelligence’ has been gathered and further investigations are expected to result in more arrests.


Several fraudsters used social media to commit remote purchase


fraud. Criminals offer goods at heavily discounted prices via social media and then steal the credit card details of the user in order to buy the goods they are selling. The buyers’ card details are then passed on to other fraudsters.


In a follow up, the police have launched an awareness-raising campaign on social media – #BuySafePaySafe. This complements UK Finance’s Take Five to Stop Fraud campaign, which gives customers advice on staying safe from fraud and scams.


“Close cooperation with retailers and the financial sector means we can crack down on the criminal gangs targeting consumers online,” said Detective Chief Inspector Glyn Whittick, head of the DCPCU.


“Fraudsters are increasingly targeting people through social media,” said Whittick. If a fintech offer seems too good to be true, it probably is, he added.


www.ibsintelligence.com | © IBS Intelligence 2018


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