An approach to the Legal Challenges of the Fintech Sector.
The Fintech sector appears as a real alternative to banking institutions, challenging its internal and slow procedures, offering formulas, which are faster and more flexible for the benefit of consumers, bringing a competitive advantage with respect to the old school bank institutions. This framework has helped Fintech star-ups to position themselves as fast-growing companies and gain market share against the big giants. Any consumer can obtain with a single click on-line financing in a matter of seconds, avoiding cues, documents submission and long waits, all of that due to the new technologies such as, blockchain, big data scoring, artificial intelligence, machine learning,... which along with the financial services have caused to emerge the new Fintech sector.
The Fintech industry includes from equity management, personal financing, alternative financing to transactional services, blockchain and bitcoins, among others.
¿What are the legal challenges that such companies are facing? ¿What laws apply to them?
The Fintech sector is new and growing but lacks a specific regulation. Currently there are a number of associations and forums that conscious of the impact that the enactment of a new regulation can have, have undertaken initiatives in support of the drafting of a legal framework for this type of businesses, that favors its development and improves its competitiveness. In this sense, the “White Book of the Fintech Regulation in Spain”, which was approved last February by the “Spanish Fintech Association”. For more information access the link https://asociacionfintech.es.
Therefore, one of the main challenges is the uncertainly created by the lack of regulation which may affect the fast growth of the sector. This leaves companies entering such sector at risk that the regulations that may be enacted are too restrictive, therefore, affecting their competitive advantage in favor of the bank institutions. An example of a restrictive legislation is the Bitcoin Regulation enacted in the State of New York, the so-called "BitLicense", such regulation has caused entities and start-ups to leave the State due to the difficulties to operate. For more information please access the link http://fortune.com/2015/06/11/bitcoin-shapeshift-new-york-bitlicense/.
Fintech companies are subject to money laundering regulations, specifically, Spanish Law 10/2010, concerning the prevention of money laundering and financing of terrorism. Such law, which poses a challenge, requires to set up a mechanism of control of clients to avoid fraud and identity theft among others. In this sense, the Spanish Money Laundering Commission (SEPBLAC) has approved the use of procedures to identify clients by videoconference, a big step that is key to the Fintech companies since their goal is to eliminate on-site bureaucracy. For more information
Consumer protection laws apply to Fintech companies. In Spain, the Royal Legislative Decree 1/2007, approving the Consumer Protection Law. The main challenge here is for companies operating internationally offering Fintech services in several countries. Such companies could find themselves subject to different legislations and Courts of law, since the domicile of the consumer prevails when deciding the applicable law and Courts with competence for resolving disputes. A solution is to resort to the on-line conflict resolution methods used by consumer such as the “Online Dispute Resolution” platform (ODR). For more information https://webgate.ec.europa.eu/odr/main/index.cfm?event=main.home.chooseLanguage.
The Fintech sector is ruled by Data Privacy Laws, in Spain, the Organic Law 15/1999, of Personal Data Protection and its developing regulations. Such law places large fines in the event of a breach. Another challenge for the Fintect companies since they process large quantities of personal data of consumers, therefore being highly exposed to big penalties resulting from potential consumer claims and to cybersecurity threats. For this reason, companies need to comply with such regulations to avoid contingencies and big fines, specifically, they need to meet the requirements for the legitimate processing and transfer of personal data to third parties, implement cybersecurity measures and a method to handle security breaches, to name a few. Under the new EU Data Privacy regulation, coming into full effect in 2018, Fintech companies will have to meet additional obligations due to the processing of big data. For more information https://www.lexleyww.com/single-post/2017/03/06/Nuevo-Reglamento-de-Protección-de-Datos-Europeo.
For more information on the legal services for Fintech companies - please contact Belen Martin - www.lexleyww.com