The only way out is through: A Fintech approach to UDAAP


For Fintech start-ups, the world is their oyster. In the past year, countless numbers of firms have launched products and services to pursue what entrepreneurs aptly call the “blue oceans” of uncontested market space.1 In 2021, wealth tech and payment technology (“Paytech”) companies, as well as challenger banks have made considerable progress dominating the financial services space, undoubtedly capitalizing on increased consumer demands fueled by the pandemic.2

The goal for these disruptive, blue ocean conquering Fintech companies is to start at a sprint, achieve mass adoption, and scale rapidly with minimal delay. And yet, it is difficult to hit the ground running when these entities are faced with a maze of existing regulatory hurdles. Moreover, U.S. regulators and the Biden Administration have indicated that more oversight and regulation of Fintechs is needed. However, it is not yet clear how regulators will handle products like buy-now-pay-later (BNPL) installment plans and digital assets offered by Paytech and wealth tech firms.

Online Banking2 Despite the uphill battle new market entrants face in navigating the requirements of regulations like the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, Truth in Lending, and the Bank Secrecy Act, both BNPL and digital asset firms need to balance the transformative power of their technologies with consumer-friendly safeguards to show regulators that the Fintech space is not the wild west.

So, while the federal agencies consider what to do with the current consumer financial regulatory framework for these products, and questions arise as to whether the existing model sufficiently covers them, firms of all sizes are contemplating how to be proactive in mitigating consumer-related risks given the uncertainty in the market and current patchwork of federal guidance and oversight.

As the industry grapples with these questions, start-ups can harness this opportunity to adapt by offering products that continue to upend the financial services space, and enacting standards to prevent unfair, deceptive, or abusive acts or practices (UDAAPs) that undermine market integrity and harm consumers.

Bitcoin1One of the best ways to offer such a product is to start from a place of understanding – understand why consumer protections exist in the first place and appreciate how transparent and ethical practices work to preserve compliance with regulations without compromising growth. A strong UDAAP policy helps to set the standards from which an effective consumer compliance program can operate. The policy should establish internal best practices and define prohibited acts that are based on known/published UDAAP violations, which are critical for employee success. Another component of an effective policy is a robust approval and periodic review process of all marketing materials, disclosures, and other communications with consumers (including interactions with customer service) on at least an annual basis or whenever a new product or service is introduced.

Protections against UDAAPs are broad and all-encompassing. How successful a firm is in navigating the space is largely dependent on the strength and adaptability of the overall consumer compliance program, of which the UDAAP policy is a part. Early-stage firms that want to provide consumer financial products and services should seek out a trusted partner to advise on policy development and the relevant consumer protection laws and regulations that govern, or might potentially govern, their desired blue ocean. Embedding a robust regulatory preparedness program and periodic review process to ensure compliance, and readying the company’s resources for incoming regulations, serves a positive, proactive company culture. Facing the challenges ahead requires collaboration with partners who offer deep industry knowledge, and proven, innovative platforms to help fintechs solidify compliance and disclosures, and sustain a competitive edge, moving forward.

Chartwell COMPLIANCE logoChartwell Compliance, a trusted partner to some of the biggest names in Fintech, leverages its decades of experience in the financial services industry to advise paytech, gaming, and crypto start-ups on both the development of effective consumer compliance programs, as well as with UDAAP and consumer complaints periodic reviews. Seeking, finding and collaborating with teams who have “been there and done that” for other financial service companies is a marketing force multiplier for fintechs navigating their way through uncharted waters.

Regulations are a matter of when, not if. Companies facing the expected emergence of regulations can find a range of resourceful technology tools to ensure their compliance journey’s success. Enter Naehas.

Innovative SaaS leaders like Naehas have a strong history of working with companies operating in the financial service industry – including financial technology firms (neobanks, wealthtech, paytech and challenger banks, among others) – and provide a customer experience platform built specifically to address the needs of regulators, stakeholders, and customers. This includes a complete Marketing Compliance platform for Disclosure and Offer Management, Ad Content Reviews, and Document and Disclosure Compliance. The use cases also include marketing disclosures, omnichannel offer management outreach, customer agreements, new client welcome packets, as well as other ESG, GRC, CRA criteria.

For fintechs, there are four core ways AI platform technology benefits regulatory compliance efforts:
  1. REDUCES RISK by reviewing more content with greater accuracy
  2. INCREASES PRODUCTIVITY by reducing review cycle times and enabling more content and offers with confidence
  3. DRIVES CONSISTENCY by having a comprehensive rules-based assessment that guides the review and approval process
  4. IMPROVES AUDITABILITY by centrally managing all evidence in one source of truth thereby supporting credible challenges

By employing artificial intelligence, augmented with industry-specific compliance rules, Naehas
Intelligent Reviews reduces tedious, error-prone manual review processes, and ensures consistency and accuracy across the entire marketing workflow. As a result, talented and valuable marketing, compliance, risk mitigation, and legal staff are freed up to advance more interesting, pressing, and valuable work.

Online BankingImportantly, the automated review platform also enables fintech firms and start-ups (neobanks, regtechs, etc.) to leverage technology in a way that well-prepares them, and positions them for growth. Through automation, platforms that offer automated review of regulated content centrally manage all compliance evidence in a single, searchable file system. This allows fintech to demonstrate its compliance process using the built-in compliance reporting functionality. It’s essentially a bulletproof audit history for regulators.

AI-powered technology delivers multiple and meaningful efficiencies: enhanced and increased personalization; better customer experience/retention; higher top line growth; reduced costs; and expedited time to market. Further, AI platforms ensure disclosures and regulatory content are accurate, compliant, and auditable. Those are valuable gains for companies looking to create and maintain a competitive edge.

Anne Walton, CAMS, Chartwell Compliance, contributed to this article. A Director on the Global Outsourced Compliance team at Chartwell, she assists clients with their day-to-day compliance operations. She provides advisory services drawn from over 15 years of experience in anti-money laundering, risk management, and investigations.