Is compliance a fintech product or a set of navigational instructions? – Fintech Garden Episode 131

Podcast 131: Is compliance a fintech product or a set of navigational instructions?

Our hosts, Igor Tomych and Dumitru Condrea, address the topic of compliance in fintech. Considering the rise of KYC and KYB in fintech development, Condrea recognises their potential as part of fintech offering packages. On the other hand, Tomych recognises the importance of compliance within fintech, how it helps companies navigate the legal complexities of the financial world, but he sees it as just that, a set of navigational instructions.

Compliance: Trust vs Safety

It’s fair to assume that everyone, including both of our hosts, agrees on the influence of compliance on trust. Having boundaries in place not only helps companies in the field know how to operate and avoid legal complications, but it also levels the playing field for all companies to operate through the same rulebook.

Thinking about it critically, however, it does not guarantee safety. Our hosts invoke the infamous story of Silicon Valley Bank. The organisation met regulatory requirements, stress tests, and audits, yet collapsed because its asset allocation and market context changed faster than regulatory assumptions. This case illustrates that compliance frameworks create confidence but cannot model every systemic risk.

In comparison, the hosts also brought up the Wirecard case. Wirecard deliberately created internal mechanisms to bypass its own compliance processes, particularly by hiding activity behind subaccounts. The case shows how weak enforcement and loopholes can undermine the intent of the regulation. They argue that compliance still matters because, without it, far more institutions would fail, but it is not absolute protection.

Crypto’s Approach to Compliance

It would be remiss not to bring up the crypto world when discussing compliance. The hosts highlighted how crypto entrepreneurs attempt to lend the responsibility of compliance to technology, rather than relying on traditional control systems. Igor and Dumitru dubbed the crypto world as the ‘wild west’, claiming that its unstructured regulatory nature is the direct cause of scams, Ponzi schemes, and unstable projects. Yet, eventually, crypto will regulate itself when enough people demand more safety within the vertical. Hence, the new state of stablecoins.