The Fintech Revolution – Part 2: Managing Legal And Business Risks

Author:Mr Mark Adair and Philip Nolan
Profession:Mason Hayes & Curran

In Part 1 of our FinTech series, our Technology team examined what FinTech ('financial technology') is and why technology is driving the rapid change in the financial services sector. While money may make the world go round, there are a variety of legal and business risks that FinTech companies need to be aware of. In this Part 2 we will analyse some of those risks in relation to start-up issues, financial regulation, big data analytics and commercial contracts, and consider strategies for FinTech companies to mitigate and manage them.

Start-Up Issues

As is generally true for start-ups across all industries, funding is critical for FinTech start-ups. For this reason, FinTech start-ups need to address a number of strategic issues at the beginning of their journey to help make their company attractive for investors. These include choosing the right corporate structure to enable continued growth, putting in place appropriate shareholder agreements that clearly define share ownership, and employing an efficient tax structure. Having these items in place will show potential investors that the company has considered the various legal and operational issues that are often at the core of why so many start-ups fail. Other important tasks are drafting employee share incentive plans to ensure the company can retain key staff, putting in place necessary confidentiality materials to safeguard the company's ideas, negotiating and signing directors' service contracts, and getting essential supply chain contracts in order.

Financial services regulation

Arguably, the financial industry is the first highly-regulated sector to be subject to major change through technological innovation. With the introduction of a range of new European and local regulations in recent years, along with corresponding penalties for non-compliance, it is critical for FinTech companies to have qualified experts to help them navigate these legal 'grey areas'.

One of the fundamental obstacles for FinTech companies is accurately determining if, and how, these financial services regulations and licensing requirements apply to their products, services and business governance. A FinTech company in Ireland, for example, should understand what criteria differentiate a non-regulated entity from one which requires approval or licensing by the Central Bank of Ireland.

A further challenge here is that, as regulations in matters such as payment services and consumer protection continue to...

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