“Fintech” has been used lately as a catch-all for the development of new technologies that have challenged and changed the more traditional aspects of finance, such as wealth management, lending, insurance, and payments. A current key challenge that the financial technology industry is facing is if the industry can continue to grow while facing increasing amounts of financial regulation.

The United States Department of Treasury, Office of the Comptroller of the Currency (OCC) overseas the national bank chartering system and is seen to have more capabilities in combining fintech firms under one regulatory system. The Office of the Comptroller of the Currency believes that a new regulatory framework is needed to continue to allow for more innovation while ensuring financial compliance, and is due to release a white paper later this week to begin establishing a new regulatory framework. The white paper isn’t expected to contain specific proposals but is seen as a way to begin formal discussions. In the U.K., the financial regulators have attempted to strike a middle ground by allowing innovators to test financial products with consumers under regulatory watch.

During the World Economic Forum in Davos, most major financial companies’ leaders spoke about new innovations in the fintech area, but also the need of regulation to control growth of startups that target core parts of their business. The largest global financial services firms can stand to lose nearly $150 billion in revenue to startups in the financial technology industry. An upgrade to the needed IT systems for adapting to increasing competition can cost more than $4 billion for each bank, however the potential cost saving can reach nearly $340 billion. Both traditional banks and fintech startups face regulatory challenges in anti-money laundering, customer knowledge requirements, and privacy and security. An argument for looser regulations is to avoid stifling innovative technologies that can change activities like banking, securities settlements, and trade reporting. A possible scenario that may affect the fintech industry is that large banks will acquire the startup fintech firms. This is largely due to the high cost of financial compliance and the fact that larger banks have the infrastructure to ensure legal compliance.

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