Early-stage and high-growth fintech firms are under pressure to expand quickly. Time-to-market pressures are amplified by funding rounds or attempts to gain first-mover advantage in dynamic markets. This does not always align well with the need for regulatory oversight and authorisation applications. EU and UK regulators expect firms to meet a high bar when it comes to governance, internal controls and operational resilience. This leaves an interesting challenge for high-growth, early-stage fintech firms as they question how to meet regulatory expectations while remaining innovative and agile.
What do Regulators Expect From Fintech Firms?
Authorisation applications are more than just administrative hurdles, they are tests of regulatory maturity for firms. Successful fintech firms should be able to demonstrate robust governance and compliance frameworks, including clear board oversight and internal risk management structures. Compliance readiness in the form of AML procedures, safeguarding of clients assets and financial crime prevention, are also of significant importance to investors, stakeholders and customers. Fintech firms should be able to demonstrate levels of financial resource planning aligned with their proposed permissions and transparency over their technology stack. They should also be able to demonstrate controls over any outsourced functions and ensure compliance of third parties. Regulators are increasingly focused on how firms manage third-party dependencies and will consider whether operational resilience has been built in from an early stage. The key is to integrate compliance early into the business model and consider it as a catalyst for sustainable growth.
How to Fast-Track the Regulatory Process without Cutting Corners
Fintech firms often find that regulatory authorisation can be slower than expected, particularly when they are trying to push through applications to facilitate rapid growth. This delay can be due to the poor regulatory readiness of the firm instead of any attempt by regulators to stifle innovation. There are some strategies that firms can take to fast-track the process without compromising on compliance or quality:
- Early Engagement with Regulators
- Clear and Complete Documentation
- Specialist Support
- Embedded Authorisation Considerations
Early Engagement with Regulators
One of the most effective ways to build trust and ensure a smooth authorisation process is to proactively engage early with regulators. Waiting until the point of application to open a dialogue can lead to missed opportunities for clarification of their expectations. Regulators should be viewed as a supportive mechanism to enable a fintech firm to develop and can be helpful throughout the process in many ways. Participating in innovation hubs, regulatory sandboxes and consultation processes from an early stage can help establish rapport and identify key requirements prior to submission.
Clear and Complete Documentation
Authorisation applications are commonly delayed due to missing or inconsistent information. Given the complexity of some regulatory requirements, it is understandable that firms may fall short of the required process. But a well-prepared application can make the difference between timely authorisation or a delayed process with negative impacts for all involved. Applications should clearly explain the firm’s operating model, risk controls, compliance procedures and financial resilience measures tailored to the specific permissions being requested. Generic, incomplete and unsupported applications can risk raising red flags with regulators and should be avoided to build a healthy and effective relationship.
Specialist Support
Bringing in specialist support is a great way for early-stage fintech companies to avoid unnecessary delays. Advisors with deep regulatory experience can identify blind spots early, shape the application with supervisory expectations and ensure it reflects best practice. Internally, firms should assess their readiness in areas such as governance, AML and safeguarding, and use specialist advisors to identify and address any gaps prior to the submission. This level of specialist support will enable the firm to present a robust and credible case for authorisation.
Embedded Authorisation Considerations
A change of tone from the top is needed to shift the narrative about compliance throughout the firm. Embedding authorisation considerations into early product planning through risk assessments, capital planning, compliance infrastructure and due diligence demonstrate a compliance-by-design approach. This proactive and holistic approach will give the firm more credibility with regulators and enable them to move smoothly through the authorisation process. Fast-tracking is not about cutting corners, it’s about building compliance considerations into every stage of growth. Fintechs that invest in the necessary infrastructure will be best placed to scale and move faster with a solid foundation for innovation. Firms should approach regulation as a strategic enabler rather than a barrier, invest in the right governance and advisory support, and embed compliance from an early stage. This will enable them to keep their first-mover advantage while meeting regulatory obligations without slowing innovation. For help streamlining your authorisation process, contact Novatus Global today. One of our experts will be happy to walk you through our offering and explain how we can assist your business on its journey to authorisation.
