FinTech One World,
Many Rules:

Understanding FinTech Legal and Regulatory Variations Across Borders

In recent years, the global expansion of FinTech has been nothing short of a revolution.

Reshaping financial services across borders has delivered cutting-edge solutions together with a diverse array of regulatory frameworks. From licensing prerequisites to data protection laws and consumer safeguards, the rules differ vastly across countries.

This has created a myriad of laws and regulations that FinTech firms must navigate when operating internationally. In the midst of this regulatory change, companies face the challenge of staying compliant across various borders. This requires both strategic approaches and robust risk management.

Regulatory environment in the UK

For UK-based FinTechs, the regulatory landscape is intricately tied to the nature of their operations and the products or services they are offering.

Developments in recent years include the following:

Cryptoasset Activities: The proposed regulation of cryptoasset activities is a significant regulatory development and firms will, in the future, be required to be authorised by the FCA. There is now a cryptoassets financial promotion regime that means financial promotion of qualifying cryptoassets will need to be approved by an authorised person (unless an exemption exists). These and other developments illustrate the shifting focus of the FCA to bring cryptoasset activity within the UK regulatory sphere.

Emoney: Becoming an e-money provider requires authorisation and ongoing compliance with applicable Emoney rules. Increased scrutiny of applications by the FCA will continue to be a feature of the significant growth in this sector.

Overseas Entrants

From an international perspective, overseas FinTech businesses wishing to enter the UK market have needed to consider the constantly developing regime of UK based rules and regulations and this is set to continue. Primarily, this has meant considering whether FCA authorisation is required and if so, the extent of ongoing financial and other compliance, such as data protection/information security and financial crime.

Common regulatory challenges across jurisdictions

Beyond the UK borders, FinTechs encounter a spectrum of common issues while operating globally. Some of these include:

  • Accessing funding: Securing funding from diverse investor types in different parts of the world involves navigating various legal regimes, posing challenges for FinTechs.
  • Regulatory compliance: Adhering to separate regulatory regimes isn’t straightforward, especially concerning the nature of the product or activity offered, when alternative rules may apply.
  • Data protection and security: Safeguarding data and ensuring compliance with varying data protection laws globally is a significant concern.
  • AML/KYC compliance: Meeting both AML compliance and KYC investment compliance requirements requires detailed analysis across different jurisdictions.
  • Fraud and security measures: Implementing robust measures to combat fraud is a key consideration for FinTechs.
  • Marketing and advertising rules: Compliance with financial product advertising regulations and standards requires an assessment of differing regimes that may present challenges for how a product or service is marketed on a uniform basis.
  • Employment law and IP protection: Hiring local and remote teams necessitates navigating applicable employment laws. Additionally, protecting intellectual property is crucial for FinTech products and services.

FinTech Startups: the challenges

Navigating regulatory compliance poses several challenges for FinTech startups, often requiring a thorough understanding of the regulatory landscape and a strategic alignment of business operations with these frameworks.

Some common hurdles include:

Transitioning to a “steady state” regulatory environment

Transitioning from the current state compliance (“as is” to “to be”) demands dedicated resources, focused effort, and forward planning. Startups must align their business models with applicable regulatory frameworks – a task that demands significant attention and expertise.

Regulatory fragmentation to “harmonisation”

FinTech Startups require legal and regulatory expertise that offers a practical and pragmatic harmonised approach. This involves developing a compliance framework that considers available financial resources, business plans, and addressing dynamic changes in  the product and marketplace.

Global and International expansion: legal and regulatory challenges

As FinTech companies embark on international expansion, several legal and regulatory challenges may come into sharper focus over time.

Here are some key considerations:

1. Appropriate listing venue
Selecting the right listing venue to raise public funds involves navigating various factors – including market stability, investor appeal, and regulatory compliance. Choosing the appropriate exchange or platform is crucial for a successful global expansion.

2. Primary host/home regulator
Identifying the primary host or home regulator is essential to both understanding and complying with the regulatory framework of the primary market of operation.

3. Favourable investment regime
This involves exploring jurisdictions that offer conducive environments for investment inflows, including supportive policies and frameworks that attract investors.

4. Innovative investment mechanisms
Exploring innovative investment mechanisms like Advanced Subscription Agreements, Crowdfunding, Dual Class Share structures (like those found on the London Stock Exchange for founder-led innovation companies), and instruments such as SAFE (Simple Agreement for Future Equity) can aid in capital acquisition and growth.

5. Favourable tax and employment regimes
Identifying jurisdictions with favourable tax regimes and employment laws is critical. Accessing markets with tax-friendly environments and conducive employment regulations can significantly impact operational costs and talent acquisition strategies.

Navigating these diverse challenges demands a comprehensive understanding of international regulatory landscapes and strategic planning. FinTech companies aiming for global expansion need to carefully evaluate these factors to establish a solid foothold while ensuring compliance with diverse legal frameworks.

How Arbor Law can help your FinTech business

Arbor Law’s distinction lies in its dedicated focus on assisting FinTech businesses, backed by extensive expertise and industry recognition.

Here’s how we make a difference:

FinTech and TMT expertise

Recognised as a “Legal 500 Firm to Watch,” Arbor Law brings a wealth of experience in Fintech and established expertise in Technology, Media, and Telecommunications (TMT).

Understanding the core of FinTech: data, technology, and agreements

Our team comprehends the intricacies of data, technology, and the web of third-party agreements that form the backbone of FinTech operations. This understanding allows us to provide tailored solutions that align with the unique needs of each business.

Legislative development insight

Through our comprehensive experience, our team can quickly spot existing and WIP legislative developments that may apply to new product or business propositions.

Providing dedicated support

Acting as a committed partner, Arbor Law works closely with startups, offering support akin to an internal team member.

Leveraging subject matter experts

We leverage subject matter experts who focus on key compliance issues, such as data security. This specialised expertise is vital in crafting comprehensive and effective compliance strategies tailored to the specific needs of FinTech startups.

By being deeply embedded in a startup’s journey, Arbor Law aims to bridge the gap between regulatory complexities and practical, tailored compliance solutions. This approach acknowledges the limitations and resources startups have – while striving to ensure they effectively meet regulatory standards.

Please contact one of our sector experts when it comes to FinTech or Adam Moy to learn more.