Innovative FinTech companies are continuously trying to change the traditional financial landscape. 

Although this provides the necessary innovation, compliance continues to play a crucial role when it comes to sustainable growth and trust. 

With 2024 just around the corner, there are several developments that will be important. 

New regulations – PSD3 

New regulations are logically an important development in compliance. In 2024, PSD3 will have the greatest impact in this area. Thanks to PSD2, newcomers have been given the space to disrupt traditional financial services. The successor, PSD3, is mainly aimed at combating fraud in the sector. Indeed, losses in authorised push payment fraud rose to £485 million in the UK this year.  

An important way in which PSD3 should help combat fraud is through stricter strong customer authentication rules. This means that when businesses or consumers make an online payment, they must validate the transaction with their smartphone or banking app. FinTechs that want to be well prepared for PSD3 must therefore deploy strong two-factor authentication – if they have not already done so – which will also make it easier to comply with new regulations in the future. 

Given the new regulation’s heavy emphasis on protecting customers and businesses, PSD3 will ensure that reimbursements in the case of fraud are much larger than they are currently. This, in turn, will see FinTechs placing far more focus on monitoring risk and protecting their clients in order to avoid losing more money should they become victims of fraud.   

More focus on third party compliance 

As many as 60% of FinTechs still do not perform a compliance check on third parties. This is a huge risk and there is a good chance that stricter action will be taken against it in 2024. Doing business with parties that are not compliant can have serious consequences for the relationship of FinTechs with regulators.  

We saw this most recently in the case of German Banking-as-a-Service platform Solaris, which fell under scrutiny and restrictions from the German regulator BaFin following a concerning banking supervisory audit. Regulatory intervention not only impacts current business activity, but often leads to a lack of trust which can see regulators conducting their own third party background checks on prospective customers 

In a worst-case scenario, partnering with non-compliant organisations can sometimes result in companies losing their licences. What’s more, if you’ve been sanctioned before then you’re more likely to be viewed as a risky option to prospective clients, leading to further loss of business and a tattered reputation.   

As FinTechs move into the new year, it’s crucial for them to scrutinise prospective clients and the partners that they choose to work with. FinTechs must have a clear vision of what kind of business they’re aiming to run and consider that their clients and partners are crucial elements in achieving this. As regulators continue to crack down on third party compliance,  investing in solutions that integrate compliance into their offerings will serve FinTechs well in 2024 will serve well in ensuring the right risk monitoring and onboarding processes are in place.   

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Optimisation and working smarter with AI 

AI is transforming virtually every industry, and FinTech is no exception. I expect that in 2024, FinTechs will gain a heightened ability to monitor all facets of their business and assess risk simultaneously.  

Savvy FinTechs will harness AI in this way to integrate compliance into all workflows, which will require the development of departments devoted solely to the implementation of compliance across the product. Too often, organisations separate compliance from their end products, rather than viewing them as a single intertwined entity. Shifting mindsets around compliance in this way will help FinTechs run tighter ships in an environment where compliance is becoming ever-more important. Alongside this, regulators will also increase their use of AI in the coming year, tapping it to conduct more efficient analyses of companies’ reputations and risk. 

FinTechs that perceive compliance not simply as something to comply with, but as an opportunity, to use this together with innovative AI technology to their advantage, will have a better chance of leading the industry in 2024.

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