Fintech and Compliance: U.S. Regulator Scrutinizes Fintech Bank Merger and Expresses Concern Over Lack of Regulation

According to the latest information from LAVCA, over 30% of the funds invested in Latin America are aimed at fintech companies, leading in VC investment amounts in the region. This increase in the creation and financing of financial technology companies is a global trend that is replicated in Chile, where the approval of its fintech law is anticipated soon.

From the startup world, there is much to say about fintechs and how they bring innovation and disruption to a traditional market like banking. The question that remains is how these companies are facing their compliance needs and what effects they may have.

For example, in July 2021 in the USA, Blue Ridge Bank (BRB) and FVCBankcorp (FVC) announced their merger. In November 2021, BRB announced that the Office of the Comptroller of the Currency (OCC) had identified regulatory matters that were concerning and that would impact the merger. In August 2022, BRB announced that it had reached an agreement with the OCC (EX-10.1), where, among other things, it was asked to review its Anti-Money Laundering and Terrorist Financing policies. Apparently, BRB's purchases of various Fintechs took their toll in this merger process, which also cost them a potential merger.

In the same vein, last week, the same OCC stated that, without stricter regulation, fintechs could lead the market to a crisis (U.S. bank regulator warns of crisis risk from fintech proliferation). These signals should be carefully considered. In Chile, we already have experience in the relationship between banks and fintechs. A few weeks ago, the banks reached an agreement with some cryptocurrency platforms, precisely based on the implementation of measures to prevent money laundering and terrorist financing.

Thus, the message is clear, every fintech should have as its base and strategic pillar a robust AML/FT policy, which is what banks, regulators, and investors will be closely analyzing when relating to fintechs. The cost of not doing so could affect the very continuity of the business.