What is fintech?
Financial technology, or fintech, has revolutionized the traditional financial sector, offering a wide range of products and services, from digital banking and payments to wealth management and financial planning.
Over the past decade, fintech industry growth has been rapid and intense, producing unicorns such as Revolut, Klarna, Stripe, Wise, and many more. While fintech looks like a flourishing industry for product managers, it also has its own particulars: fintech products are under strict compliance policies that fundamentally influence product development.
In this article, we will talk about how product managers should approach fintech regulations.
Know the regulations
Fintech product development is closely linked to compliance that differs from region to region and even within one country (e.g., different states in the USA). It is simply not possible to launch a product that is not compliant with all required regulations. Product managers must be aware of them, follow them strictly, and maintain compliance throughout product development and growth.
The central regulatory bodies include the Consumer Financial Protection Bureau (CFPB) in the US, the European Banking Authority (EBA) in the EU, and the Financial Conduct Authority (FCA) in the UK.
Let’s go through the most common regulations that a product is going to be under no matter where the company is based or where its clients come from:
1. Licensing: Not all fintechs need to be licensed (e.g., a B2B company providing software for other fintech companies), but those who offer financial products must obtain a license. Depending on the operational specifics, it will be banking and payment institution licenses, or a license to operate cryptocurrencies.
Both the regulator and the bank that provides the banking license — a Sponsor Bank partner, will need a clear vision from you of how your fintech product is going to be built and functioning in compliance with all required laws and regulations. To ensure this, you will need to prepare some documents for the Sponsor Bank’s due diligence, as well as for your compliance program, before launching the product.
2. Anti-Money Laundering (AML): Fintechs must constantly monitor any suspicious financial activity and report it to regulatory authorities. To secure this, product managers should make sure that the Know Your Customer (KYC) and customer due diligence (CDD) requirements are followed by the product.
3. Data privacy and protection. As fintechs hold consumers’ sensitive financial information, it is essential to follow all required regulations. Non-compliance and data leakage will cost the company hefty fines.
Involve a Compliance Officer in product development
As you can see, there are many rules, requirements, and regulations regarding fintechs. The role of product management in ensuring that the product is following all of them is crucial. Working closely with the legal team, CFO, and legal counsel during product development, launch, and growth should be a top priority.
Depending on the company size, the number of regulations, and available resources, the company may have only one compliance officer or external legal advisor, a legal team, or an agency specializing in fintech legal support.
The structure can also differ across companies; there may be a separate department under the Chief Compliance Officer; in others, it’s part of the financial department. Product managers should treat legal as a key stakeholder independent of the structure specifics.
The compliance professional's role is to interpret the regulations for the company and its products and guide the product team. On the other hand, the role of the product team is to create the products within the guidelines. The communication between those two departments should be constant — consult with the legal team as soon as you have an idea for a product or feature and stay up to date regarding changes that might even remotely impact the client's data.
Create a compliance requirements implementation plan
The compliance policies are going to affect how the product is built in many ways, so make sure to develop the following:
Compliance policies and procedures. Based on the legal team's guidance and their approval, product managers should create policy and procedure documents that will include detailed instructions on how the product should be built, interact with the users, and evolve. So, the policy will cover the overall vision of the product in compliance with all legal requirements. The procedure part will expand the policy and detail how it will be implemented into the product; it should include the roles and responsibilities, as well as the maintenance process.
An information security program. Ensuring that your users' vulnerable data is properly secured is essential. For product managers, this means building secure applications and interfaces, creating and documenting processes around releasing code, and monitoring access to sensitive information within your team. Moreover, the information security program should be maintained properly, including regular vulnerability and penetration scans.
User data policies. From cookies on your website to contracts with your clients, a wide range of terms, conditions, and disclosures are required for your product. Product managers have to oversee the implementation of requirements throughout cross-functional teams, including marketing, customer support, and product development.
A partner information process. The compliance requirements apply to the vendors and partners you engage with. First, the most essential partners who also offer financial products must be properly certified. Secondly, they should be aware of the compliance your product is exposed to and be ready to undergo potential audits or mandatory reporting.
To implement the plan, it’s essential to create a cross-functional team, including product, marketing, client support, finance, and legal teams. With the help of the legal and operational departments, a plan should be created with input from the responsible teams and their members.
Of course, the legal team will be responsible for the overall guidance correspondence; however, the product team's work ensures the product is built, developed, grown in the right direction, and aligned with all the regulations. Next, updating and reviewing the compliance implementation plan is essential as your product evolves and regulatory requirements change.
To sum up, alongside the robust growth of the fintech industry, it is under a variety of regulations, which evolve and tighten every year. Therefore, product managers, who play the most crucial role in product development, should be aware of all the compliance and know how to implement measures to properly meet the requirements. The process is complex and demands cross-functional team involvement to ensure product growth.