This week, Monzo, an early fintech unicorn, disclosed in its annual report that it is facing a potential civil and criminal money laundering investigation by the Financial Conduct Authority, the UK’s financial regulator. According to Reuters, Monzo’s annual report also revealed that, for a second year running, its auditors “warned its ongoing losses cast uncertainty over its ability to continue as a going concern.”
The disclosures come as the Bank for International Settlements (BIS), a consortium of central banks and financial regulators, called for fintechs to be regulated more like banks, and to “impose more stringent regulation on technology giants that spill over into financial services,” and they may have a case.
According to a recently published paper, the BIS suggested that “tech companies that play a critical role in payments and other areas should be subject to stricter regulatory scrutiny that considers issues beyond traditional market risks.” The paper goes on to suggest that while traditional FIs “can be designated as systemically important,” regulations in most jurisdictions do not address the “potential (possibly global) systemic impact of big-tech operations and of possible spillover effects to the financial sector and across all of the activities that big techs perform.”
And the Wirecard case, once a fintech unicorn that replaced Commerzbank, Germany’s second largest bank, on the prestigious Dax index of the country’s 30 leading listed companies, serves as a cautionary tale to heed the BIS’ warning on compliance. After all, for all of Wirecard’s known governance issues at the time, its debut on the market saw the start up’s value skyrocket past Deutsche Bank, arguably one of the world’s most “systemically important” institutions.
According to the BIS, “financial technology firms have grown in tremendous scale in recent years and have become important players in areas traditionally handled by banks.” With this new guidance, fintechs need to be thinking even more deeply about regulation, and should look to adopt new regtechs that leverage advanced technologies to foster financial inclusion while also safeguarding the global financial system.