Eight reasons bankers and Fintech upstarts are “up at night” about Compliance

By Bernard Lunn

Compliance is a big ugly problem and it’s getting worse and nobody has nailed it yet.

That should have entrepreneurs salivating.

Investors say,

“show me compliance deals”.

Bankers say,

“show me a solution”.

Startup founders say,

“we must spend our precious cash on lawyers and regulatory experts”.

Nobody loves compliance. Everybody hates compliance. So it’s a massive opportunity.

Looking at the usual Fintech lists and accelerators, the compliance breakthroughs do not leap out of the pixels. The usual searches turn up lots of lawyers and outsourcing firms willing to throw man hours at the problem, but that hardly counts as a breakthrough solution.

With such huge demand, the lack of supply means that it must be a very hard problem to solve. This needs more than your average app coded in a few Red Bull fueled weeks. This is more like a breakthrough in drug discovery or clean energy – demand is massive, but it is technically tough to solve.

Here are the 8 reasons why compliance is so hard:

1. Compliance is a moving target. Since the Financial Crisis we have had lots of new regulations and lots of new scandals (which triggers new regulation). At the same time we have Bitcoin, which is totally uncharted territory.

2. Compliance is a territorial smorgasbord. Finance is a global business and “bits don’t stop at borders”. However, money does stop at borders and each country has its own spin on regulation.

3. Compliance is an easy lever for politicians to pull. Beating up bankers is an easy vote catcher and the negatives from too much regulation are not so visible and causation is unclear.

4. Compliance is a cross cutting concern. Compliance cuts across every system, including ones written before most of today’s regulation was even a gleam in the eye.

5. Compliance does not have a revenue line attached. Despite the massive risk posed by compliance failure, there is no revenue line where a banker can grab budget from.

6. Compliance is an existential threat. Get it wrong and you could literally be gone tomorrow. So, nobody loves spending money on compliance, but you have to spend money on it.

7. Perfect Compliance is a recipe for never getting out of bed. Perfect compliance is simple. If you don’t do any business, you won’t have any compliance risk. If you don’t get out of bed, you won’t get run over by a bus. You are “damned if you do, damned if you don’t”.

8. Compliance is functionally complex. There are so many areas to understand and each is horribly complex on its own –  Money Laundering (KYC), Tax (FATCA), Consumer Protection, Data Privacy, Systemic Risk (Dodd Frank). Add them all together and it is a recipe for sleeping like a baby (wake every few hours screaming).

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.

12 comments

  1. […] Know Your Customer is one of the toughest challenges for both established banks and Fintech startups… Quintin pointed me to a new player called Trunomi that enables consumers to manage their own Personally Identifiable Information (Pii). The current KYC process is a nightmare for Banks and Fintech startups alike. Something radically new is needed and that could be Trunomi. The never-ending arms race between fraudsters and the cyber security forces can only end when we can easily prove our digital identity online. However that digital identity is so powerful that as Ethereum’s Vitalik Buterin pointed out: […]

    Like

  2. […] Know Your Customer is one of the toughest challenges for both established banks and Fintech startups… Quintin pointed me to a new player called Trunomi that enables consumers to manage their own Personally Identifiable Information (Pii). The current KYC process is a nightmare for Banks and Fintech startups alike. Something radically new is needed and that could be Trunomi. The never-ending arms race between fraudsters and the cyber security forces can only end when we can easily prove our digital identity online. However that digital identity is so powerful that as Ethereum’s Vitalik Buterin pointed out: […]

    Like

  3. […] Back in October 2014 we wrote about how Compliance was a huge market opportunity. However it maybe one of those markets where the problem is blindingly obvious but the solution is non-trivial. Nearly a year later I still do not see the Regtech Compliance killer system; if it is hiding in plain sight please tell me. So I got to thinking about what a great Regtech Compliance solution would look like, so that if I ever spotted a beast like this in the wild I would recognize it. […]

    Like

  4. […] Back in October 2014 we wrote about how Compliance was a huge market opportunity. However it maybe one of those markets where the problem is blindingly obvious but the solution is non-trivial. Nearly a year later I still do not see the Regtech Compliance killer system; if it is hiding in plain sight please tell me. So I got to thinking about what a great Regtech Compliance solution would look like, so that if I ever spotted a beast like this in the wild I would recognize it. […]

    Like

  5. […] Back in October 2014 we wrote about how Compliance was a huge market opportunity. However it maybe one of those markets where the problem is blindingly obvious but the solution is non-trivial. Nearly a year later I still do not see the Regtech Compliance killer system; if it is hiding in plain sight please tell me. So I got to thinking about what a great Regtech Compliance solution would look like, so that if I ever spotted a beast like this in the wild I would recognize it. […]

    Like

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