The Value of Financial Compliance

Business Development and Compliance teams have competing goals, resulting in a natural friction. Knowing how to extract value from this friction can provide a competitive edge.

BizDev & Compliance: A Love Story ❤️

Two teams with seemingly competing interests exist internally at each and every FinTech and traditional financial institution in the US — Business Development (“BizDev”) and Compliance teams, specifically.

BizDev is often if not always the revenue-driver of the business; its mission is to get the product into as many hands as possible. Its Key Performance Indicators (“KPIs”) usually revolve around active users, transaction volumes, and App Store rankings; these metrics must be maximized.

Conversely, Compliance is in the business of implementing legally-required controls which limit the potential size of the customer base and prevent specifically-sanctioned individuals and entities from having access to the business’s offerings. Its KPIs are more abstract than traditional business metrics and are usually centered around resolving compliance audit findings and minimizing the risk of adverse regulatory actions.

The tension between these two essential teams is real, but tension is not always a bad thing. Friction is often a feature, not a bug.

Take politics, for example. Many people complain about “political gridlock” and the slow pace at which politics seem to move. Way I see it, the friction between two political parties of relatively equal power is an important part of a healthy Democracy; it’s what keeps competing interests in balance. Without this friction, political actions are swift and Dictatorships are free to thrive.

The peaceful coexistence of BizDev and Compliance is crucial to the success of the business, but it comes neither naturally nor easily. This is often because BizDev sees Compliance as a cost center to be minimized; and to be fair, many FinTech startups simply can’t afford to have a robust compliance program from Day 1. After all, you need a product and users before a compliance team is even necessary — and resources are finite.

Knowing Your Customer 🧑

“Know Your Customer” (“KYC”) is often a four-letter word at many FinTech startups. Simply put, KYC is a Federal requirement for financial institutions to collect and verify certain identity information from their customers. This is to ensure that businesses do not provide services to individuals and entities specifically sanctioned by the US Treasury Dept. This information includes:

Collecting and verifying the above on a large customer base is no easy feat, especially when all of your customers are digital. Many identity-verification startups have emerged to address this challenge. Some companies simply use one of these third-party ID-verification services to collect and verify the information as part of their compliance programs and call it a day.

Smart companies will use KYC to not only satisfy their compliance obligations, but to really understand their customers. Specifically, they use KYC data to build better risk/fraud models (identity is a key component to fraud) and to gain a deeper insight into their users and user behaviors.

Compliance Builds Trust 🏦

FinTech startups require banking partners to operate, and banking partners require FinTechs to have adequate compliance programs. If a FinTech neglects its compliance obligations, their banking partner may break up with them, instantly killing the business if there is no backup bank.

Banks need to be comfortable with their FinTech customers because the bank is ultimately responsible if, for example, one of their FinTech customers ends up providing accounts for known terrorists. This is why large banks conduct periodic compliance audits on their FinTech customers. A robust compliance program allows a business to acquire multiple banking partners and can help secure additional fundraising rounds in the future.

Compliance By Design 🎨

Early-stage FinTech startups are not expected to have a robust compliance program from Day 1 — again, you need a product and customers before a compliance team is necessary. But it makes sense to consider compliance early in the product design phase to ensure, for example, that the business will be able to collect and verify very sensitive KYC data in a safe, scalable manner.

Too often do FinTech startups develop products/services that are unable to satisfy compliance requirements (i.e. technically illegal) and thus never get off the ground. Involving legal/compliance teams as early on in the design phase as possible is easy to do and pays big dividends in the long-term.

Bitcoin Compliance Professional

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store