MEMBER FIRM OF BAKER & MCKENZIE INTERNATIONAL Financial Services and Regulation Kuala Lumpur Client Alert December 2015 Advancement of FinTech and Potential Challenges What is FinTech? FinTech – a contraction of “finance” and “technology” is the use of technology in the financial services industry resulting in the introduction of new and innovative products and services, primarily through software. At the same time however, FinTech disrupts and challenges the way conventional financial services and products are offered by granting access to untrodden markets through alternative services backed by technology. FinTech has resulted in the emergence of alternative financing through peerto-peer lending and merchant financing by electronic marketplace operators to merchants. Other FinTech advances include equity crowdfunding; digital currencies which operate independent of any central authority or banks; payment and remittance systems which bypass traditional banking channels; and the use of big data and analytics to maximise available customer data to further leverage on customer relationships. Trends in FinTech With the appropriate enabling factors such as investor confidence (and consequently, effective investor platforms), a receptive regulatory environment, technological infrastructure and financial education, FinTech will continue to rise and significantly influence the way the financial services industry is currently operated. This trend has been acknowledged by industry players and the Malaysian regulator, the Securities Commission Malaysia (“SC”) alike. In mid-2015, the Malaysian Capital Markets and Services Act was amended to recognise and regulate equity crowdfunding platforms, with six new licenses issued to equity crowdfunding operators. It is noteworthy that Malaysia is the first country in the ASEAN region to introduce crowdfunding laws. In September 2015, the SC launched the aFINity@SC initiative (i.e., Alliance of FinTech Community) to create a network for FinTech stakeholders to engage with the SC, with a view of accelerating growth and innovation in the financial market. More importantly, through aFINity@SC, the SC intends to introduce policy and provide regulatory clarity for FinTech businesses. The SC has introduced an “Industry Call for Participation” channel for FinTech stakeholders to broach topics which demonstrate the present and future state of FinTech businesses in Malaysia. It is therefore clear that the SC recognises the growing importance of FinTech and are acting on it. We expect that there will be developments in the regulatory environment surrounding FinTech in the near future. Potential Challenges for the Future The primary challenges that FinTech businesses face are as follows: Regulatory and compliance. With the innovation of technology, there will continue to be changes to the regulatory and compliance environment. Until such time as there are clear regulatory prescription governing FinTech companies and their businesses, FinTech companies must evaluate their business models at the outset - can the business activity be undertaken without it becoming a regulated entity, or, would it have to seek the appropriate licences or approvals and incorporate internal compliance frameworks ranging from anti-money laundering procedures to business continuity measures. Privacy and data protection. FinTech companies must have adequate data security procedures in place including having obtained or issued the necessary data protection consents and notices, know-how and training for employees and crisis management plans to respond in the event of a cybersecurity breach. Consumer protection and contractual issues. FinTech companies should be aware of the applicable regulations designed for consumer protection such as those relating to breach of contract, warranty claims and liability exposures. Enforceability of third party vendor contracts and customer contracts are also important. Intellectual property. FinTech companies should be aware of intellectual property risks and to protect their innovative software and technology through obtaining patents, copyrights and trademarks, or entering into contractual agreements with their employees, suppliers, distributors and/or third parties. Competition. Partnerships with and acquisitions of FinTech companies may give rise to competition issues, depending on the nature of such partnerships and acquisitions. Technology is continuously evolving and it is inevitable that FinTech may at times, fall within a “gray” area, resulting in uncertainty in the regulation of FinTech businesses, and those seeking to partner with FinTech companies to launch their initiatives. Early engagement with advisors and the regulators would help to bridge the gaps and determine the rules that would apply to the venture in contemplation. ©2015 Wong & Partners. All rights reserved. Wong & Partners is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. www.wongpartners.com For further information please contact Wong Sue Wan +603 2298 7884 email@example.com Rowena Lee +603 2298 7919 firstname.lastname@example.org Level 21, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur
Register now for your free, tailored, daily legal newsfeed service.
Questions? Please contact email@example.comRegister
Advancement of FinTech and Potential Challenges
To view this article you need a PDF viewer such as Adobe Reader.
Popular articles from this firm
If you would like to learn how Lexology can drive your content marketing strategy forward, please email firstname.lastname@example.org.
Related topic hubs
Privacy Manager, Global Privacy Centre
"This is a very good resource and I appreciate receiving it everyday. Each newsletter has a great deal of content and the daily feed allows you to 'pace' yourself. The content is relevant to the areas that I address and the articles are written by counsel who are very experienced in these areas and can communicate in a meaningful and effective way."