Compliance and FinTech don’t often see eye to eye. Burgeoning FinTech companies such as Airwallex, while trying to disrupt the market, are facing regulatory hurdles at every stage of innovation. It’s a burden which is costly and time-consuming, and such barriers can often prevent FinTech startups from getting off the ground altogether. Nonetheless, these regulatory structures are essential to ensuring money is transferred safely and cleanly.
To start off our new series, Talking to Airwallex, we meet Jasmine Koh, Airwallex’s General Counsel. In her past life, Jasmine Koh was a financial services lawyer, but gone are her days of billable hours and corporate office life. She’s ditched the heels for trainers (almost!), and she now faces the new and diverse challenge of working around old structures to support innovation.
We talked to Jasmine over some of Melbourne’s tastiest cocktails to find out exactly what it takes for a company like Airwallex to be compliant, why regulation is so essential, and whether FinTech and compliance will ever be able to work in harmony in the future.
Could you briefly explain what the legal team does?
Our workload is split into three boxes. As we provide a financial service, the first, and primary box would be compliance, especially with Anti Money Laundering laws.
The second box is regulatory licensing, and there is a degree of overlap there with compliance, but it’s the regulatory green light for us to be able to work within different jurisdictions.
The third box is day-to-day legal work, reviewing and negotiating contracts with our business partners, and advising on things like corporate governance and risk assessments.
Of course, when we go into our fundraising rounds, I’ll be dragging and tagging legal work falling off the back of that as well.
Your main focus is regulation, what’s the biggest issue facing FinTech and regulation?
One of the bigger challenges within FinTech is that regulation struggles to keep up to date with fast-paced innovation. This is true of FinTech globally, purely because the regulatory environment can be quite a slow-moving beast. It’s not entirely bad, because it means that thought is being given to other value drivers, such as accountability and consumer protection.
What we’re typically finding is that we’re trying to fit what we do into traditional models, which doesn’t always work; though regulators have been very proactive in engaging with FinTechs, which is very encouraging.
At the risk of sounding geeky, it is an exciting time to be in financial services from a regulatory perspective. While regulatory flux can be commercially frustrating, it shows that new vigour is being injected into regulatory systems to accommodate innovation. In an ideal world, I see FinTech and regulators working in a symbiotic environment, educating each other.
I had practised in New Zealand when the FMA (Financial Markets Authority) was leading the way in crowdfunding and peer-to-peer lending; or as the Australians like to call, marketplace lending. The regulatory environment was key in enabling a market for this type of micro-financing, which has proven to be an effective tool for the commercial viability of entrepreneurs across the Tasman.
Similarly here, and fortunately for FinTechs such as Airwallex, the Australian government has set up a set of integrated policies in its paper, Backing Australian FinTech, to encourage and develop the growth of our industry.
We are lucky. We get to play in regulatory sandboxes, and test our mettle in innovation hubs. These concepts are trending globally, with early adopters such as ASIC (Australian Securities and Investments Commission) in Australia and the FCA (Financial Conduct Authority) in the UK. In Asia, we have seen Bank Indonesia set up a Fintech Office, Hong Kong has a Fintech Facilitation Office, and Singapore’s MAS (Monetary Authority of Singapore) is streamlining the licensing framework for payments to support the growth of FinTech.
Just last month, I was in a room with UK regulators, including the FCA, FinTech Australia (where our founder, Lucy, is a newly minted Board member), and other FinTech players in the market, hashing out how FinTech, specifically in the payments industry, can operate effectively within our respective regulatory environments. Across the board, there is still work to be done, and undoubtedly there are teething issues, but it was great to see regulators and industry players being proactive in making this work. It bodes well for the future of FinTech.
How does Anti Money Laundering and Counter Financing of Terrorism fit into all this?
I wish dealing with AML (Anti Money Laundering) could be as simple as doing my laundry!
Without a doubt, AML is integral to a payments-oriented FinTech such as Airwallex. In enabling foreign exchange (FX) and the movement of money globally, we are forced, really, to have a love affair with AML. We eat, sleep, and breathe, AML.
Compliance with AML is not a singular operation. It is a joint effort. All parties work together to ensure that the movement of funds is, for want of a better word, clean. When working on our business partnerships, one of the key elements for me is being overly pedantic over the apportionment of duties and responsibilities for compliance with AML.
We work together with our business and banking partners to conduct proper due diligence and ensure our KYC (Know-Your-Customer) processes are effective to detect red flags such as PEPs (Politically Exposed Persons), for example. Our having insight on where the money is coming from, and going to, is very important, not just locally but globally, as we have to fall in line with so many different iterations of AML laws in the specific jurisdictions where we operate.
Needless to say, reporting and compliance consumes a lot of our time and resources.
Yes, the Bureau van Dijk database is a godsend.
So, how does a startup cope with all this regulatory burden?
For a FinTech startup such as Airwallex, the availability of infrastructure and/or resources to comply with regulation in the way of big banks, can be a challenge.
I find it amusing how people simply stick “tech” at the end of everything, these days… but queue our saviour; RegTech.
In very simple terms, RegTech is the use of technology to enable us to deliver regulatory compliance solutions in a more efficient way. RegTech and FinTech really work hand-in-hand. In order to ensure that we are compliant, we work with a number of RegTech players in the market to deliver compliance solutions where possible. As we speak, we are in the process of engaging RegTech players to optimise our AML and KYC processes.
RegTech, like FinTech, is also an evolving industry. There is a lot of promise in AI (Artificial Intelligence) and Machine Learning delivering more efficient AML solutions, such as the application of AI to the creation of AML risk data, enabling database screening, and improving transaction monitoring. We look forward to being able to take advantage of these improvements as they come to market.
From a lawyer’s perspective, what are the positives about working in a FinTech?
The lack of billable hours certainly takes off a lot of stress!
There are different types of stresses working in a startup; those long hours are still the same, but what’s really exciting about working as General Counsel at a FinTech startup like Airwallex is that we are at the forefront of shaping a new innovative commercial and regulatory environment.
Working as a lawyer in FinTech means that I have to find a way to merge working in three different fields; the law, finance, and technology. There are certainly challenges to this! For example, I may be trying to conduct a semi-comprehensible discussion with our developers around APIs and bots, then translating the substance of that into an EULA (End User License Agreement), or an SLA (Service Level Agreement), in a way that makes commercial sense to a banking partner, taking FX rates and payment corridors into consideration.
It’s a little mind-boggling some days, but a mentor once said to me that at the heart of it, the law is an exercise in clear thinking. Often, I find this to be true. Most things can be “logic-ed” out. I also find the exposure I get in FinTech globally means we can be thought leaders in a growing industry, and this in itself is already very rewarding.
The law is generally seen as an industry embedded in time and tradition. I feel that the ability to practice law, over the years, has evolved into a kind of privilege, instead of a service. What I have seen, however, is that innovation has touched, not simply the world of finance, but the legal world as well. Traditional fields of legal practice, such as conveyancing and some areas of private client work, are being disrupted by technology. This means that lawyers necessarily have to find a way to evolve with the times.
I am hopeful that this also translates to an evolution in perspective. It’s not always easy, it certainly is challenging, but if as a lawyer you can’t innovate and can’t move with the times then you’re not an effective lawyer.
If you had some top tips for any new FinTech company relating to regulatory compliance, what would they be?
There is no secret sauce for new FinTechs in the regulatory space. Ironically, it lies in age-old commercial wisdom, which is this: build strong relationships.
FinTechs, regulators, and the banking industry all have a part to play in educating each other, so strong relationships are incredibly important. I cannot emphasise this enough. Strong relationships are the bedrock on which FinTechs can successfully navigate the commercial and regulatory environment which it needs to operate in.
Another tip is to always be on the alert for developments in regulation, and do take advantage of the myriad of regulatory goodies out there for FinTechs, such as those sandboxes, innovation hubs, and lower licensing hurdles which are out there.
It also goes without saying; leverage off technology. If you can automate a process, do it. If you can optimise a system, then engage your peers in FinTech and RegTech to assist.
Finally, embrace the regulatory flux. See it as a way to shape the direction of your FinTech, rather than as an obstacle. Regulatory uncertainty should not promote commercial paralysis, but rather it should give your FinTech an opportunity to develop new ways of being.