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According to a joint study by Forrester Consulting, 78% of financial services organizations are feeling increased operational burden due to global regulatory complexity. Neobanks and other fintechs are among those facing the greatest strain as they expand into global markets while striving to meet their legal obligations in different jurisdictions.
New and updated regulations and industry standards governing security, privacy, operational resilience, and anti-money laundering (ALM) are making it difficult for businesses to navigate the sector. Moreover, different jurisdictions impose different regulations, and financial services organizations are obliged to meet all of them in the regions they serve. In some cases, these can lead to conflicting obligations.
Global regulatory complexity is becoming an increasingly difficult puzzle to solve. This has led to fragmented compliance initiatives in which organizations end up taking a strictly jurisdiction-by-jurisdiction approach. For example, AML and data privacy regulations often clash, because the former requires personal information, while the latter aims to restrict its use and disclosure.
Unfortunately, although some regulations, such as GDPR and CCPA, have set a baseline for data privacy standards globally, the industry is still a long way off from international standards that complement – rather than compete with – one another. As a general rule, organizations should use the most stringent regulations in the jurisdictions they serve as a starting point, but it’s not always that simple.
The results of the 2024 US Presidential election are also likely to have a considerable impact on international financial services. On one hand, President-elect Donald Trump, an outspoken supporter of cryptocurrencies and digital assets, is expected to reduce regulatory oversight. Recently, UK finance minister Rachel Reeves echoed a similar sentiment by announcing plans to revamp regulations that have hindered growth since the global financial crisis. On the other hand, the EU is doubling down on AML regulations, while also taking on the ambitious task of regulating the use of AI in financial services and other sectors.
International regulatory standards for financial services has always been uneven and complex, and that’s unlikely to change. In fact, given both rapid technological advancement and growing global economic uncertainty, current trends suggest that regulatory divergence will increase yet further. To weather the storm ahead, Deloitte recommends taking a ‘divergence-resilient approach’, as opposed to an ad-hoc approach that addresses compliance challenges as and when they arise.
As the ‘growth at all costs’ business mindset wanes, especially in more risk-averse industries like finance and fintech, it’s time for organizations to think about sustainable profitability over the longer term. This also means that financial services must stop viewing compliance as a check-box exercise or a necessary evil, but as a competitive differentiator and a way to restore and maintain trust in financial systems – both new and traditional.
