​Between traditional FS firms and FinTechs, one very notable difference is their approach towards regulation and staffing control functions. The former tends to have it at the core of it's business often in an advisory capacity with the latter having it as an after-thought to establishing and scaling the business, and when it comes to hiring, they try to run as lean a function as possible. 

Finlay Barry from the Banking and FS team in Mason Alexander and Caren Schwannauer from the MA FinTech department had a chat about the potential reasons behind that and challenges and learnings FinTechs and Banks can take from each other:

Why do large traditional FS firms have such a need to hire risk and compliance professionals? 

F: The increase in demand for banks to have strong risk and compliance professionals is in large part due to increased scrutiny from regulators and the burden put on them in recent years with large amounts of new regulation coming through the pipeline. The regulator is also now putting pressure on companies to better define their compliance function. They want to see business have an intent to be increasingly disciplined and see a clear definition between separate regulatory issues i.e conduct, prudential risk and operational risk. This has driven businesses and individuals to specialise in areas of regulation which has resulted in them having to hire increased numbers of people who are specialists in a specific are. That coupled with the high level of new regulations coming through the pipeline has resulted in traditional banks having higher headcount in compliance and often bringing in consultants who have the specialised skillsets required. 

Do Fintechs have the same need to hire compliance professionals? 

C: Technically yes because they are – just like banks – operating within the same regulatory framework. In reality hiring for the Compliance department is not on the Top-List, Software/Product and Sales/Marketing are way more important. It usually stays like the until the first fine from the regulator comes in. 

Would Banks see the Risk and Compliance department as something that drives the business or something that blocks innovation? 

F: Banks would see it as something that helps to run the business effectively and they know that they can’t operate effectively without having strong risk and compliance frameworks in place. The repercussions for not having sufficient risk, compliance and financial crime systems in place can be detrimental to companies. The number of Compliance employees is more prescriptive in larger firms - the Central Bank will often advise a bank on how many people they may need in e.g. the AML department depending on the amount of transactions the bank has. Citi for example as a large corporate bank has 300+ people in Ireland doing KYC and AML. 

Would Fintechs see the Compliance department as something that drives the business or something that blocks innovation? 

C: Usually Compliance is seeing as something that you “have to do because the regulator wants it”. Compliance is just requirements that need to be fulfilled as little as possible but as much as necessary. Founders sometimes understand that it’s necessary, yet they think it’s annoying and they feel that it blocks creativity and hinders them to launch new products. 

Is it harder to attract or to maintain talent for traditional firms? 

F: For more traditional FS firms it can be harder to maintain talent. The increased need for strong compliance professionals across several industries has resulted in higher levels of competition and increased turnover in these businesses. These professionals who have specialised and have a strong technical skillset are now in higher demand, with higher salary levels. There is also a larger number of competitors in Europe with increased amounts of new and innovative Fintech firms hiring out of the traditional FS risk and compliance functions. 

Fintech firms have become increasingly attractive for risk/ compliance professionals. They are attractive as employer because they are seen as more innovative and dynamic. People see these as great places to learn something new and challenging in a dynamic environment. 

Is it harder to attract or to maintain talent for bank? 

C: For Fintechs is harder to attract talent – Compliance professionals usually come from an established bank which offers more security, a more structured workplace environment and a higher salary. Yet, those that made the change from a Bank/FS to a Fintech often don’t want to go back. They value how they can contribute to the company success and strategy from a compliance point of view and they like to optimize processes where e.g. the bank they have previously worked for was lacking flexibility. 

What can traditional FS firms learn from Fintechs? 

F: Traditional business can learn how to use technology and innovation to run more efficiently. The old legacy systems in these firms require a large number of people to operate. Some are already investing heavily in new technology, but those are huge projects. Building the capacity to innovate internally could enable these business to operate vastly more efficiently.

C: Banks need to looks at more technological advanced solutions that are also integrating well into each other to avoid silos. But that being said, It’s difficult for third party providers especially those that are new on the market with top-notch technology to integrate into the old legacy systems that banks have in place. 

What can Fintechs learn from banks? 

F: Fintechs can – and should – learn to put a stronger focus on rick and compliance.  A strong control function can be a competitive advantage and enable a business to operate more efficiently. The closer the compliance team works with the product, the better the product will be. 

C: Fintechs have to put a stronger focus on Compliance. You can often see in Fintechs that the Product team develops something and at the very end, when the product is already finished they talk to the Compliance team, which then says you can’t launch the product like this because you forgot about X,Y,Z. This makes processes inefficient as well - therefore, a strong collaboration is needed. 

When you are starting a new company, you can set up a strong and scalable Compliance process from Day 1. No bank is able to do that anymore but it’s a massive advantage and opportunity Fintechs should seize. 

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For more information contact:

Caren Schwannauer: c.schwannauer@masonalexander.ie

Finlay Barry: f.barry@masonalexander.ie