Let’s take a look at the top 4 operational risks facing fintechs:
1. Regulatory Non-Compliance
Not all fintechs fit neatly into pre-existing regulatory regimes and with regulators focusing on this sector, fintechs need to ensure they are compliant with new and old regulations such as anti-money laundering, know your customer and data protection laws. Those that engage in cross border transactions need to be on top of regulatory processes and seek appropriate licences in other countries.
The financial services sector is heavily regulated and ignoring the legal aspects of this industry can lead to fines, sanctions, and increased oversight from regulators
2. Cyber Security, Data Security and Privacy Protection
While cyber risk affects allbusinesses, the financial services sector is one of the most targeted. Fintechs collect, store and manage huge amounts of sensitive data therefore it is essential for fintechs to build in effective measures to protect their systems, data and the privacy of their customers. Management also need to be prepared to respond to a security or privacy breach to minimise the operational and reputational impact to its business.
Fintechsmust give priority to their cyber security risk management to ensure they maintain the confidence of customers, stakeholders, and regulatory authorities.
3. Financial Stability
Choosing the right strategic partner is vital to the growth and financial stability of a fintech company. Whether raising capital from venture capitalist, fund managersor private investors, it is important to represent the investment opportunity accurately, understand the investment objectives of your partner, their expectations and exit timelines, and most importantly have appropriate legal documentation in place. Many fintechs have failed or have struggled to survive due to the burden of legal costs when the company and their investors’ interests are not aligned.
4. Intellectual Property
Technological innovation is at the heart of every Fintech organisation. Fintechs must be proactive in protecting their intellectual property such as hardware, software and branding. It is important to understand how employees, consultants, acquisitions and collaborations with third party vendors each have their own set of issues with respect to intellectual property rights. Litigation involving infringement of intellectual property is extremely costly and time consuming.