Fintech

In a nutshell

Innovation in the banking and finance sector is (somewhat paradoxically) nothing new. Developments in technology have been improving the speed and ease of financial services since the advent of credit cards in the 1950s. So, what has changed? Where the term once applied to large monitors chugging away in the back offices of high street banks, it is now something we interact with on a near daily basisranging from mobile banking apps to machine learning, customer service bots, and the complex world of cryptocurrency. As a result, there is now an increasing demand for legal professionals with expertise in this brave new world.   

In such a broad sector, it should come as no surprise that the work of a Fintech lawyer is extremely varied. Fintech originated as the crossover between financial services and IT, but its evolution – particularly in the last ten to fifteen years – has been rapid. According to Laura Douglas - Senior Associate in financial regulation at Clifford Chance: “The vast majority of Fintech companies in the UK work to develop payment systems or payment type solutions, but it’s essentially any novel use of tech products in finance.” Lawyers specializing in Fintech must of course have a strong grasp of the technical details of the products they work with, but that’s not all  

The financial services sector is one of the most heavily regulated, and it is regulation that is the primary concern around Fintech for manyFirstly, it’s a really exciting area because the regulatory framework around Fintech is still developing” Douglas tells us. The challenge this creates for firm’s however is that the regulatory laws are constantly changing: “Holding those two things together, a clients desires to do things now, and what the regulatory laws are now, with what the market might look like in two to five years’ time, is one of the main challenges.”  

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What lawyers do

  • Assist clients with the structuring documents that underpin new products. According to Douglas, these documents help to define and explain what a product is and how it works, which in turn helps to determine whether or not the tech needs a license, or whether it needs to be registered.”  

  • Assist clients looking to establish cryptocurrency trading platforms as they seek to navigate regulatory hurdles. For Douglas: “Some of the most interesting work I have been involved with was looking at how they get set up, and how they engage with users across a huge range of jurisdictions while remaining compliant with a variety of different regulatory frameworks.”  

  • Conduct research into region-specific regulatory issuesDouglas expands“We often work closely with local counsel on cross-border surveys to find out what regulatory regimes are in place, and how best to understand those regulations, as well as trying to advise substantively on what regimes there are here in the UK.” 

  • Advise clients handling financial data on how best to utilise and protect an individual’s data in accordance with GDPR law. This might include offering advice to clients on how particular compliance laws apply in practice.  

  • Advise high street banks investing in new technologies on issues in cybersecurity, such as the risks that come with increasing digitization. 

Realities of the job

  • “I think a key one is a willingness to look at things from first principles” Douglas explains, adding that “a lot of this hasn’t been done before, so analytical skills and intellectual curiosity are a must.” 

  • Despite the broad range of practice areas that Fintech lawyers are likely to dip into, most Fintech departments are not looking for generalists. As Douglas puts it“In order to advise clients effectively, we need to understand in a relatively detailed way how their products and services work, so that we can advise them on the right factual matrix.” 

  • For lawyers working in the Fintech space, it is essential to be able to communicate effectively with those working in the business world. This means having a strong grasp of the industry, to such an extent that many firms want their employees to have qualifications or experience in business, such as an undergraduate degree or time spent working in the industry prior to becoming a lawyer.  

  • The total market capitalization of all cryptocurrencies is now over $1.6 trillion, and so it is imperative that Fintech lawyers develop a strong sector knowledge and keep a close eye on the trends that emerge from the cryptocurrency market space.  

  • Fintech lawyers will work with anyone from inventors to developers of new Fintech technologies, so the ability to explain complex technical concepts in simple terms is essential. The people who are describing their products to you might not be lawyers themselves, so translating technical detail into legal jargon is crucial, being alive to not using different words in different contexts, Douglas explains. 

Current issues

October 2021  

  • The Fintech industry has been impacted by substantial changes in finance regulatory law introduced over the last few years. With PSD2, which regulates payment services, and GDPR, which regulates data use, introduced in 2009 and 2018 respectively, Fintech companies have had to work hard to ensure that their practices remain compliant. 

  • In 2021, the UK became the second highest investor in Fintech in the world, with £18 billion worth of deals in the first half of 2021. The demand for these services is at an all-time high. 

  • In 2017, EY’s Fintech Adoption Index estimated that one-third of consumers knowingly or unknowingly use at least two Fintech services.  

  • In July 2021, banking and payments app Revolut received a multi-million investment from Tiger Global Management and the Japanese investment group SoftBank. In doing so, Revolut became the most valuable British Fintech firm in history, valued at £24 billion. This growth has ensured that Revolut is now valued at six times what it was last year and is now worth more than three-quarters of the FTSE 100 stock market index members.  

  • In October 2020, the UK Financial Conduct Authority published rules banning the distribution and marketing of crypto derivatives to retail investors. Derivatives are financial contracts between two parties, the value of which is determined by an underlying group of assets. In this case, the FCA ruled that crypto assets have no inherent value, and so investors cannot reliably assess the risks and value of crypto derivatives.  

  • Due to the popularity of instant financial services, Fintech companies are seeking to develop faster and more efficient online services, which raises compliance issues for companies as they struggle to meet stricter anti money-laundering rules. Specifically, KYC requirements (Know Your Customer), mandate controls around proof of identity and address, placing limits on how quick and frictionless transactions can be.