The digitalization of financial services has been on the rise globally, partly to support the financial inclusion agenda as well as to address the changing needs of customers. This call to advance financial inclusion across the globe especially in developing and emerging economies has rendered the issue of regulatory compliance and Fintech a more topical one in the business space.
Regulatory compliance in the financial sector implies strict adherence to policies and regulations surrounding the regulatory and supervisory environment of financial institutions. This includes, but not limited to compliance with Anti-Money Laundering (AML), Anti-Terrorist Financing (ATF), Corruption policies, among others.
Fintech on the other hand, simply means the application of technology to finance. FinTech is the short form of financial technology. FinTechs seek to harness the rapid growth in technology to transform the global financial ecosystem. The emergence of FinTechs has highlighted the need for digitalization as well as the importance of data in the economy. Never in the history of the world, has technological innovation been so central to financial markets development than this current dispensation. The emergence of FinTechs has brought profound changes in the traditional banking business model. This includes but not limited to changes to money transfers, business and personal loans, payment and settlement systems, how investment is done, financial advisory services among others. In Ghana, some notable FinTech start-ups include Express Pay, ZeePay, Hubtel, Paysail, DigiTeller, etc.
In this article, I highlight the need for heightened regulatory compliance by financial institutions, FinTech start-ups and relevant stakeholders in building an enabling and thriving FinTech ecosystem for better financial inclusion.
Who are the stakeholders of the FinTech ecosystem?
The FinTech network consists of diverse group of institutions and individuals who interact to build an enabling FinTech environment. They include regulatory and legal bodies, financial institutions, venture capital, FinTech companies, investors, infrastructure providers, consumers, mobile network operators, academia, consulting firms and legal advisors, international knowledge partners, etc. Each of these institutions plays essential roles critical to the survival of the FinTech environment.
Thus, the peaceful co-existence of these institutions is very imperative for the development of a thriving Fintech ecosystem. The key role of FinTech is to explore and design innovative financial solutions to address changing customer needs in this technology driven world. Financial institutions and venture capital provide funding for FinTech start-ups. The regulatory and legal bodies create an enabling regulatory and legal framework to support the operations of the FinTechs. The other stakeholders perform diverse roles, ranging from guidance and advisory services, support services, etc.
The regulator’s roles in the development of FinTech
The success of the FinTech ecosystem to a large extent depends on the existence of an adequate and robust regulatory and supervisory framework that will regulate and monitor the activities of these FinTechs. The Bank of Ghana, the regulatory body for financial institutions is therefore at the heart of the success of the FinTech ecosystem in Ghana.
To properly navigate through the Fintech environment, it very essential for the regulator to evaluate the adequacy of its existing organisational structure to support its regulatory activities. This has engendered global reforms among some regulators and supervisory bodies to better position them for their roles in this ever-changing FinTech space, of which the Bank of Ghana is no exception. Acknowledging the complexities as a result of the emergence of FinTechs, it was refreshing to know that on May 5, 2020, the Bank of Ghana announced in a press release, the establishment of a new FinTech and Innovation Office to drive the Bank’s cash-lite, e-payments and digitisation agenda.
According to the central bank, the new FinTech and Innovation Office will be responsible for licensing and oversight of dedicated electronic money issuers (mobile money operators), payment service providers (PSPs), closed loop payment products, payment support solutions and other emerging forms of payment delivered by non-bank entities. This development comes at the back of several interventions in the payment and settlement space such as the mobile money interoperability services and so forth.
In a recent development geared towards deepening financial inclusion and affirming the Bank of Ghana’s commitment in creating enabling FinTech environment, the Bank issued its first dedicated electronic money issuer licence to ZeePay Ghana Limited, a local FinTech. I believe this development will pave way for more local FinTechs with the requisite capacity to emerge.
Enhancing Regulatory Capacity for Better FinTech Supervision
Building and developing the skill-set and capacity of the regulator is a useful way of keeping the regulator abreast with developments in the field for better regulatory and supervisory framework. To keep pace with the ever-evolving FinTech, it is very needful to build new capacity among regulators to embrace the culture of change and innovation. Aside the establishment of the dedicated FinTech and Innovation Unit, Bank of Ghana should continuously train and develop the skill set of its staff especially those in the new FinTech and Innovation Unit to equip them with the requisite skills for the activities of the unit. Continuous professional development in the field of FinTech and related technical skills should be a top priority.
Regulating innovation in the financial sector presents regulators with challenging task of balancing several competing priorities such as market growth, market discipline and overall financial stability. The Bank of Ghana should capitalise on regulatory technology for better supervision of the activities of the FinTechs. Regulatory technology which is simply known as RegTech involves the application of digital technology to improve the regulatory processes. RegTech is an emerging field in regulatory compliance resulting from the emergence of FinTechs. RegTech seeks to digitize the operation of the routine compliance processes such as know your customer (KYC), customer due diligence (CDD), enhanced due diligence (EDD), regular review (RR) among others.
RegTech provides digital information technology to streamline the activities of the compliance department right from the initial clients’ engagement till clients are off-boarded. Also, it offers innovative solutions for online monitoring and routine surveillance of the activities of financial institutions. Notwithstanding the cost intensive nature for this digital transformation, I believe it is a worthy investment as the potential benefits are enormous. Research has shown that, regulators are usually a step behind the evolution of technology.
Though, the Bank of Ghana has made significant progress in this regard, technology is dynamic and not static, it is therefore necessary that, there is continuous monitoring and investment in regulatory technology. Some financial institutions have also upgraded their systems to meet the International Standard Organization (ISO) requirement. Also, most financial institutions have upgraded their online payment network and have become Payment Card Industry Data Security Standard (PCI DSS) certified.
The likes of Guaranty Trust Bank, Zenith Bank, CalBank, Access Bank, First Atlantic Bank and others have met PCI DSS certification; a welcoming development for the digital transformation agenda. Others who are yet to meet this international certification standard should be encouraged to do so for their utmost benefit and better customer experience.
Moreover, the Bank of Ghana should champion and support the spread of digital financial literacy across the country. Digital financial literacy means having the required skills and knowledge to effectively use digital gadgets for financial transactions. One must be digitally and technologically savvy to better appreciate and enjoy the products and services rendered by these FinTechs.
It is common knowledge that, the advancement in digitalized financial services presents high cybersecurity risks such as online payment fraud, hacking, among others. Individuals who in one way or the other become victims of these cybersecurity attacks may be discouraged from further use of digital services which can culminate into financial exclusion.
It is therefore necessary to sensitize citizens and the general public on digital financial literacy, using the various media platforms such as social media, the print media, television stations and radio stations. In this way, a vast majority of the population can be reached and be made aware of the wind of change brought about by the emergence of FinTechs. Financial institutions should also actively partake in this regard by continuously educating their customers on effective use of their online systems and platforms provided by their FinTech partners.
Stakeholder engagement by the regulator is also another important way of gaining a broader perspective of the activities of these FinTechs for better regulations and supervisions. Through dialogue with all relevant stakeholders in the FinTech ecosystem, the Bank of Ghana will understand the FinTech innovation and the risk profiling in their activities, helping them to develop effective policies to regulate their activities.
To conclude, the new phase of FinTech has come to stay and is very essential for all stakeholders to be agile to leverage on the numerous benefits. Nevertheless, this development presents some risks, which calls for adequate collaboration with all relevant stakeholders. While financial institutions are admonished to form strategic partnerships with these FinTechs for mutual benefits, the Bank of Ghana should continue to invest heavily in regulatory technology to build enabling regulatory framework for FinTechs.
By Eunice Yaa Cudjoe