Charles Delingpole: How compliance solutions can unleash the potential of Fintechs
Last year’s Fintech Founders Summer Survey highlighted in stark detail the challenges many founders across the UK are facing, with Covid-induced damage coming on top of the fall-out from Brexit. Indeed, 9 out of 10 founders said that the pandemic had made or will make it harder to raise finance. This year’s survey will be launched in the coming weeks; its results will show how these challenges have developed since 2020.
And yet there is scope for optimism: according to Tech Nation, UK tech VC investment is third in the world, and hit a record high of $15bn in 2020. And the UK tech start-up and scaleup ecosystem is valued at $585bn - 120 per cent more than in 2017. Despite the challenges of the last year, there has never been a better time for Fintechs to tap into the wealth of funding, talent and market share that exists – and in doing so, to help the UK economy rebound.
One often overlooked way in which founders can develop their competitive advantage that I want to focus on here is around compliance. While it is true compliance solutions are a regulatory requirement – seen as a hurdle to overcome or a box to tick t – yet, it effectively implemented they can achieve much more than this, and can present real opportunities.
Entrepreneurs and founders of early stage Fintechs, especially those in the early stages of their development, have enough on their plate at the best of times, and more so than ever in the uncertainty of today. Nevertheless, they should not underestimate the importance of onboarding effective, scalable compliance tools as quickly as possible, particularly around financial crime, as a means of increasing growth and productivity.
For instance, an effective, AI-based solution can complete name screening checks against sanctions lists, automate risk monitoring and easily integrate with existing workflows. Moreover, it can help Fintechs manage ESG risk more effectively. While ESG compliance adds another layer of complexity to an already challenging regulatory landscape, navigating it successfully is essential to business success in 2021.
Just take a look at the news: with Deliveroo’s IPO, we saw many people concerned about the ESG risk of workers potentially receiving sub-minimum wages. Take Greensill or Wirecard - almost every week there’s a front page ESG-related scandal, and that isn’t going to change. Tackling these risks means understanding the people and companies you do business with. It isn’t enough to understand one or the other, or both in silos. It’s critical to connect the two datasets and build a full picture of the stakeholders in your supply chains.
Another benefit of engaging with compliance is that it allows companies to improve their investment and acquisition prospects. This is as true and important for Fintech start-ups – enabling you to show prospective investors that you are assessing the fraud risks your business faces – as it is for those further down the track looking to scale.
Many investors will be funding a company with the expectation that it will scale quickly, so getting the foundations in place to grow sustainably is critical. By the time a Fintech is scaling and onboarding thousands of customers, partnering with hundreds of suppliers, it’s too late. Risk and compliance tools have to be in place from the very start.
This is particularly true in the case of potential acquisition. The company will be infinitely more valuable if its technology is secure, and it can confidently merge its customers and suppliers without the need for additional, more stringent checks that could have been conducted earlier.
Readers of this blog don’t need me to tell them how rapidly the Fintech sector is evolving. Covid and the resulting digital acceleration of companies has made this even more of a truism. As new financial services such as cryptocurrencies grow and change, staying one step ahead by properly monitoring and mitigating risk can help to drive growth and put in place a competitive advantage.
Ultimately, deploying effective compliance solutions means Fintechs can do more than just meet regulatory requirements: it can allow them not only to thrive, but to drive our post-pandemic recovery. Understanding and assessing risk levels enables proactivity. As the UK economy rebounds this proactivity will be essential to sustaining - and growing - the UK as a hub for Fintech innovation.
And lastly, a plug: at ComplyAdvantage, the company I lead, we don’t just say we support UK Fintechs - we’re showing it too. That’s why we’ve developed ComplyLaunch, which offers early-stage Fintechs free access to our award-winning AML and KYC tools and resources.
ComplyLaunch is about supporting the UK’s Fintech ecosystem, making it easier for founders to launch their companies and, critically, invest their limited capital in the areas that will help them to drive growth. If your company could benefit, apply to join the program now.