How Legacy Institutions are Partnering with Fintechs to Revamp Compliance

Regulatory compliance forms the cornerstone of smooth banking and trading operations for companies and banks, worldwide. To keep up with the recent technological revolution and to counter digital fraud, regulatory bodies worldwide are coming up with frequent changes in compliance guidelines. Although legacy institutions and leading banks have the expertise and experience, their systems are not technologically equipped to keep up with the constantly changing compliance horizon.

This is where FinTechs enter the picture. Fintechs have been at the forefront of the global technological revolution in the financial services industry. They have developed and improved proprietary AI-based technologies to smooth financial compliance and regulatory processes. A partnership between legacy institutions and Fintechs could facilitate smooth transitions and enable traditional investment firms to enter the global trading environment and navigate complex regulatory landscapes.

This article explores how collaborating with Fintechs can enable several legacy institutions to expand operations while navigating complicated regulatory landscapes across world markets, making it a fruitful partnership.

The Need for Collaboration

Legacy institutions have held the fort for a long time; however, recent times have called for technological expansion or face a gradual decline. The expansion of the internet and its growing reach have caused an exponential climb in the number of digital frauds. This has driven regulatory bodies across the globe to reassess and re-evaluate their current practices and create compliance regulations to counter modern-day financial challenges. This has given birth to a complex regulatory landscape, to navigate which legacy institutions need the technical expertise of Fintechs. A successful collaboration of the two institutions can produce impactful results, one of them being better compliance environments that allow legacy institutions to trade in cross-border markets and expand their customer’s financial presence.

FinTech Legacy Partnerships: Paving the Way for Better Compliance Infrastructures

The global regulatory landscape is changing rapidly to help banks and investment companies counter the rising number of cybersecurity breaches and scams. As financial regulators modify compliance requirements, traditional institutions find it difficult to keep up with changing regulations.

This is where FinTech expertise comes in handy. AI-based technologies have enabled institutions to include automated banking procedures, identity verification and security, fraud detection and risk assessment, and personal banking and investment solutions. Fintech- Legacy collaborations are transforming the compliance landscape in many ways.

Legacy Expertise Meets New Generation Technology

Institutions like banks and investment firms are run by traditional systems built on conventional principles that do not accommodate technological scaling and progress. This affected their economic growth and audience reach, hindering them from expanding to new markets.

FinTechs thrive on technology. They develop financial solutions that aim at addressing the pain points of today's market. From AI-driven solutions that help detect fraud to blockchain platforms that enhance transparency, fintech companies have the technological capabilities to solve complex problems. However, they lack the expertise to navigate the compliance and regulatory frameworks. This is where the experience of legacy firms comes in handy.

Legacy institutions that partner up with Fintechs have seen exponential improvement in all aspects. Banks and investment firms tap into younger customer segments with technology- backed solutions that drive several banking functions and facilitate smoother KYC processes. For example, fintech companies can develop automated KYC (Know Your Customer) and AML (Anti-Money Laundering) solutions embedded within traditional financial institutions, streamlining regulatory processes without sacrificing compliance.

Leveraging Technology to Automate Compliance

The financial regulatory landscape is complicated and varies from country to country. To keep up with the evolving regulatory changes, these institutions must undertake several tasks such as maintaining accurate records and reports and tracking transactions, which were done manually until a decade ago. As regulations become more complex, legacy institutions are prone to non-compliance risks unless they deploy technology.

Fintech firms are using automation and machine learning to automate processes like transaction monitoring, fraud detection and risk management, thus helping legacy firms avoid such risks and limit the possibility of human error.

When FinTech firms partner with legacy institutions, it paves the way to create a technologically charged ecosystem in an otherwise traditional setup. For example, automating regulatory reporting is a time-efficient process that guarantees accuracy and ensures compliance. This is one of the results of a successful Fintech-legacy partnership.

Streamlining Cross-Border Compliance and Regulatory Standards

The technological revolution has facilitated seamless collaborations between major FinTechs and legacy institutions, ensuring compliance with regulatory laws and paving the way for cross-border trading. This requires legacy institutions to comply with regulatory requirements like the GDPR (General Data Protection Regulation) in Europe, Dodd-Frank in the US and the FATF (Financial Action Task Force) guidelines.

Fintechs possess proprietary compliance software that accommodates the regulatory requirements of cross-border markets which can help traditional financial institutions transition smoothly into the international trading environment without worrying about compliance.

Fintechs leverage technologies like blockchain, digital wallets and smart contracts to create efficient and secure financial systems. These solutions simplify cross-border payments and enhance transparency. When legacy institutions partner with Fintechs, they can explore cross-border trading without worrying about violating any local regulations.

Strengthening Data Privacy and Protection

In today’s technologically charged financial landscape, data privacy matters. Protection of customers’ identity forms the core of most Fintech innovations. To counter the rising cases of identity and data theft, international regulatory bodies have come up with laws like GDPR [General Data Protection Regulation (Europe)] and CCPA [California Consumer Privacy Act (United States)]. Collaborating with Fintechs enables legacy institutions to handle sensitive data and information safely, risking breaches, and thus improving their trustworthiness among global customers. Technologies like blockchain, encryption and AI-powered data protection tools form the backbone of most Fintech compliance solutions and can help curb major crimes like identity theft and enable legacy institutions to garner goodwill globally.

Real-Time Reporting and Regulatory Transparency

Legacy firms that deal with capital markets, trading and derivatives are required to submit real-time reports of financial activities. This exercise requires continuous data flow, analysis and integration of various systems to meet stringent timelines. Fintechs specialize in real- time data analytics that enables traditional institutions to gather, analyze and report data in real-time. Big data, cloud computing and AI can help banks and investment firms achieve this goal through harmonious collaboration with Fintechs.

Conclusion

Fintechs are your way to the future. Their solutions are built to tackle compliance and regulatory roadblocks without compromising the integrity of legacy institutions. A notable example is when a globally recognised bank collaborated with Fintech to enhance its ability to analyse employee communications for potential compliance breaches, such as insider trading or market manipulation. This resulted in a shorter investigation time, allowing their team to focus more on looking out for potential risks.

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FAQs

What is the significance of compliance in financial institutions?

Compliance is essential for ensuring smooth banking and trading operations while adhering to regulatory guidelines designed to counter fraud and other financial risks. It helps maintain trust and stability in the financial ecosystem.

Why are legacy institutions struggling with compliance?

Legacy institutions often rely on outdated systems that lack the technological capabilities to adapt to rapidly changing regulatory landscapes, making them prone to inefficiencies and non-compliance risks.

What role will AI play in future compliance measures?

AI will continue to drive innovations in fraud detection, real-time reporting, and personalized financial solutions while ensuring adherence to evolving regulations.