Technological innovation in the financial services sphere has enabled financial institutions to adopt and use Financial Technology ("FinTech") to improve or allow for more effective or efficient provision of financial services. FinTech often involves innovation - new business models, applications, processes, and products or new ways of delivering those products. It includes computer programs, apps and other technology used to support or enable banking and financial services. FinTech businesses cater for a wide range of consumer needs; including online banking, obtaining financial advice, personalised investment portfolios, cash transfers, and share trading platforms. Successful FinTech businesses such as PayPal and AfterPay have become household names.
FinTech has redefined the financial services sector and changed the way providers interact with clients and customers. It has altered the way in which financial services are structured, delivered and consumed. The products and services are designed for flexibility to meet the modern demands of consumers and create efficiency in business operations, for example with apps and websites that consumers can access from anywhere.
2. Regulatory Framework
There are a number of areas of law that will apply to your FinTech business. FinTech businesses are generally subject to the same or similar frameworks of financial law as traditional businesses, such as financial advice, AML/CFT, banking, and securities. The digital nature of FinTech means that the law around data privacy and intellectual property will also apply. This can add new or different challenges to ensuring the delivery of financial products or services complies with relevant legislation given the way FinTech businesses interact with customers and gather and provide information.
(a) The Financial Markets Conduct Act 2013
The regulatory regime for FinTech is largely technology neutral, having undergone change in 2021 after attempts by the Financial Markets Authority to create a specialised scheme for personalised digital advice. The Financial Markets Conduct Act 2013 ("FMCA") does not specifically refer to 'technology' with the aim that FinTech will be subject to the same regulatory scheme as traditional financial services, as opposed to having a distinct legal framework. A technology neutral approach is beneficial for FinTech businesses because there is no requirement for financial advice to be given by a natural person but it can create challenges with strictly complying with a regime that is largely founded on "personal" services. This means that the FMCA allows for automated 'robo' advice, provided it still follows the regular financial advice rules and the provision of advice is still fully protective of the client receiving it. This can pose some practical challenges to fulfil legislative requirements depending on the nature of the technology and platform being used, but FinTech being subject to the same regulation as traditional financial services should promote consumer trust and confidence in the industry.
(b) Fair Trading
The FMCA also contains fair dealing provisions that will apply to your FinTech business. Everyone providing financial services or issuing financial products has an overarching obligation to ensure all advertising and promotional material is not false or misleading. This includes adequately explaining risks to customers or investors. There are also provisions directed at unsubstantiated representations and similar provisions that are designed to protect investors from relying on information that has not been properly scrutinised and may not be correct or true. Given the multitude of ways that information can be presented on a website or through a digital service, there needs to be caution taken on the way information is presented and to manage the expected degree of reliance that a person should place in it. Links to a large number of informational sites that are not subject to scrutiny, coupled with personalised advice can create issues where a customer advises they relied on information contained in links. This is an issue that needs to be managed very carefully.
(c) Financial Service Providers (Registration and Dispute Resolution Act) 2008
If your FinTech business is providing a financial service or providing financial advice, the Financial Service Providers (Registration and Dispute Resolution Act) 2008 ("FSP(RDR)A") will apply. Your company will be in the business of providing a financial service if it is carrying on a business of providing a financial service (whether or not the business is the provider's only business or the provider's principle business) (Section 6). Even if it is a simple financial service - such as an easy way for people to pay bills or transfer money between friends, the regulations will apply.
Any business that provides financial services is also required by the FSP(RDR)A to be registered on the Financial Services Provider Register ("FSPR").
If you are providing financial advice, your financial advisors must be engaged by a licensed financial advice provider ("FAP") (or authorised body).
(d) Anti-Money Laundering and Countering of Finance Terrorism Act 2009
You may also have obligations under the Anti-money Laundering and Countering of Finance Terrorism Act 2009 ("AML/CFT Act"). If so, there are very substantial obligations that you will need to comply with – and potentially very serious consequences if you do not (which can include criminal law sanctions for individuals or directors of companies, including large fines or sentences of imprisonment). As such it is imperative that any AML/CFT Act processes you have in place to complete risk assessments and due diligence on the users of the FinTech you are utilising is iron clad and will achieve the same level of verification and detect any suspicious activity in the same manner as if they were "in person" clients. These requirements apply to all financial institutions; including companies who are lending, transferring, trading or investing money.
(e) Privacy Act 2020
If your FinTech business is automatically collecting user information, your company will have to comply with the Privacy Act 2020 which substantially increased privacy compliance legislation requirements from previous privacy law. FinTech companies typically collect and process large amounts of data; including personal banking information. This data is used to shape and customise services in accordance with the consumer's needs. The Privacy Act 2020 has introduced a raft of strict requirements on businesses that collect personal information from customers, which your FinTech business will need to comply with and this may require reasonably significant disclosures in respect of what personalised information is collected, stored, shared and on what basis.
(f) Intellectual Property
The digital nature of FinTech means there will also be interaction with intellectual property law. If you are creating a novel app or website; you will want to think about how you can protect your intellectual property and properly commercialise it, whether by way of copyright, contract, trademarks or licensing to third parties. This can extend beyond the overall content of your site and the way it is delivered, to ownership of copyright in legal documentation and source or object code in any delivery systems used by the FinTech to provide its services or products.
FinTech can be a very efficient way of providing services and is often innovative and aims to make things as simple as possible for customers. Underlying that, there are a large number of potentially quite complex legal requirements that need to be fulfilled and taken into account when implementing a FinTech platform. We can help you to mesh the requirements of complex legal compliance with delivering innovative and simple FinTech offerings. If you need any assistance, please contact:
Mia Simmonds Keate on (09) 306 6724 (email@example.com)
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© McVeagh Fleming 2021
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.