New Fintech regulations and the changing climate in 2023

The last few months have been turbulent for fintechs. With tanking economies, falling investment interest and an extremely long crypto winter, change has become a familiar state.

But as the industry continues to mature, more changes are expected – this time in the form of regulations that will seek to stabilize and secure fintechs by building trust in the area.

Here we take a look at the four best fintech sectors that will experience new regulations.

Regulatory changes for cryptocurrency and DeFi

Since US President Joe Biden formalized his intentions to regulate cryptocurrency and the decentralized financial space in 2022, much debate has been aired about exactly how such a task can be done without compromising the privacy and autonomy of the space, which has made it so successful with investors.

James Corcoran, Chief Growth Officer at KX, explains the dilemma. He says a common concern in the industry is that as the regulators and ancillary technology become involved in the crypto ecosystem, innovation will slow down.

“Regulation is inevitable – the IMF has said that crypto-assets are no longer niche and regulators must catch up. The European Central Bank has called on eurozone countries to harmonize different rules around crypto regulation before EU-wide laws come into force at the end of 2023. The US is also pushing for more regulation, with the US Treasury urging new laws to address gaps in crypto regulation. .”

He continues: “When you strip everything down to the bare essentials, the fundamentals behind trading crypto are similar to how traditional financial markets work. Introducing regulation will provide greater stability, security and efficiency, which arguably will lead to more – not less – innovation, competition and choice Better oversight and governance will also further strengthen its role as an additional form of currency and quell the wild west naysayers.

“Ultimately, it’s about giving choice and security to both existing players and new market players.”

More regulation of established players in the digital space

As cyber threats increase and security becomes an increasingly focused consideration, traditional financial institutions find themselves out of touch with the latest innovations, technologies and regulations required to secure their systems. Jurijs Borovojs, CTO of Transact365, explains that 2022 has been particularly turbulent for traditional financial institutions.

“On the one hand, we have seen large legacy institutions being penalized for non-compliance and due diligence; as was the case with Citi Group’s £12.5m fine for failing to effectively monitor trading activity and the £63.9m fine for HSBC, which had underperformed in its anti-money laundering due diligence.”

But he points out that traditional financial institutions have come to the rescue of countries with increasingly unstable economies – most notably, the Bank of England’s intervention after the pound fell following government tax cut announcements.

“Companies and customers are struggling to maintain trust in traditional forms of finance. For these institutions, it is important that they rebuild this trust quickly or risk increased alt-fi market penetration. Had alternative forms of funding such as cryptocurrency been more consistent in 2022, we may have already seen a sharp increase in alt-fi adoption. That said, the crypto sector has bounced back nicely, opening up new opportunities for growth, awareness and increased trust from people whose faith in trad-fi institutions has waned.”

He adds: “This dynamic directly affects the consumer, who is stuck between a rock and a hard place in terms of who to trust when placing assets. The stakes are particularly high in 2022, with the cost of living crisis present in the UK, meaning wise investment and security are paramount.”

Anti-fraud regulations for the banking area

As part of an effort to prevent rising financial fraud, the UK – the world’s second largest fintech hub – is exploring the introduction of a national fraud strategy.

In response to the Labor Party’s call for a national fraud strategy, Daniel Holmes, SMB Fraud Prevention at Feedzai, explains that such a move is necessary because fraud losses continue to increase year on year.

“Money lost to scams and fraud has long been cited as a risk to national security, but now more than ever, as we enter more economic hardship, it’s becoming clearer that the impacts on consumers themselves are just as devastating.”

He continues: “Banks usually bear the brunt of the burden when it comes to regulatory change, but the bill should not ignore the fact that there are many other parts of the payments system and digital ecosystem that play a key role during a fraud. “

Holmes goes on to explain that the latest Payments Systems Regulator (PSR) regulations announced in October are a positive step in the right direction, as the proposed changes will force banks to work as a collective more than ever before.

“If the proposed regulation makes its way to reality, consumers will benefit from improved liability protection, meaning they are less likely to be out of pocket. In addition, banks will need to fundamentally rethink their approach to monitoring not only payments leaving the bank, but also payments they receive.”

Buy now, pay later (BNPL) to comply with new rules

The largely unregulated BNPL space has been navigating stormy waters of late. With inflation on the rise the cost of living, the post-pandemic economy is seeing more people turn to loans, and

BNPL is expected to feature prominently as consumers reduce their immediate spending and use it as a mechanism for necessities.

In mid-2023, suppliers will face stricter regulatory procedures. The new directives will require BNPL providers to conduct thorough credit checks on consumers to ensure they can afford to take out loans. Furthermore, lenders must also be approved by the Financial Conduct Authority.