Fintech Firms Trek Towards Compliance

December 29, 2016

The following is an excerpt from an article published on Moneylaundering.com in which BitAML founder, Joe Ciccolo, shares his thoughts on the evolution of fintech compliance.

…Some fintech firms have registered as money services business—perhaps the most familiar category of financial customer to bankers and regulators alike.

Others have adapted their business models to avoid qualifying as an MSB, a designation that generally entails more compliance expenses and often confers a reputation of being high-risk, he said.

Yet nailing down a regulatory definition of “MSB” before determining whether it applies to a particular fintech also may invite confusion. FinCEN’s website, for example, broadly states that any business behaving as a “money transmitter” is an MSB, but the bureau makes exceptions for any firm acting as “an intermediary solely between BSA regulated institutions.”

The OCC has issued perhaps the clearest series of statements about what regulators expect of the industry. On Dec. 2, the agency disclosed plans to create a specialized charter for fintechs.

The charter would establish a formalized means to extend capital, liquidity and compliance requirements to the industry, similar to the rules currently imposed on traditional financial institutions.

The OCC’s plan represents a welcome development for fintechs, given that a prudential regulator would go a long way towards ensuring that fintech firms are responsible for managing their own risks, while also giving the firms added legitimacy, sources said.

“It’s something that fintech and the greater tech community has been lobbying for for some time,” said Joe Ciccolo, founder of BitAML, a digital-currency compliance advisory. The proposed charter “allows these companies to move forward without the fear of regulators coming after them retroactively.”

But it remains to be seen how a charter could be flexible enough to encompass the frequent modifications or changes to a particular fintech company’s business model, and how the obligations it imposes would interact with state laws and regulations…

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