In the last few posts, I’ve covered why 2 of the most commonly applied compliance strategies – “just-in-case” (preparing everything, losing yourself in piles of documents, and overspending money), and “minimal checklist” (where you end up re-doing everything over and over again, overspending effort) is not used by successful FinTech startups.

Today, I’ll tell you about a different compliance strategy – one which ensures business growth and customer satisfaction, without compromising your credibility in the eyes of regulators or auditors. I call this approach “just-in-time” compliance, and it is based on the following observations from the industry:

There are no bonus points for perfectionism. In fact, perfectionism will actively slow down your growth – whether it means spending too much time reviewing your customer onboarding information, monitoring their transactions, or trying to create a totally risk-free compliance environment. PayPal, Revolut, Monzo, Kraken, or Coinbase don’t do it, so why should you?

The success of the compliance function is not proportional to its resources. If that were the case, big banks would never conduct shady or fraudulent operations, which inevitably result in public scandals and large fines.

Laws and regulations are surprisingly flexible. If you actually read (and more importantly, understand) European or national financial compliance regulations, you will realize that most of them are quite open-ended and allow more than one viable way of implementing and ensuring compliance.

Instead of trying to de-risk everything and firefight, you need to take a sober look at your startup’s stage and growth objectives. Then based on this analysis, you should evaluate the risks that you can (and should) currently take, and justify doing so, while basing your argumentation on the existing regulatory framework. Since this process is internally referenced to your specific risks and your business model, it can withstand almost any external inspection. That is my definition of the “just-in-time” compliance approach. 

As a compliance lead and/or chief compliance officer, I have led compliance projects (whether in licensing, partnerships, geo expansion, or day-to-day compliance operations) on all continents and have helped hundreds of FinTech founders and compliance professionals who utilized my templates and training included in the FinTech Compliance Self-Starter. 

Just-in-time compliance is based on the following 4 principles:

Lean Compliance Project Management

• It’s important not to overinvest into projects too soon and allocate your limited resources wisely: If you try to build your product, engage regulatory consultants to help you with licenses and documentation, hire your team and expand your marketing efforts all at the same time, you will likely run out of money and will have to scratch your product design and start over a few times based on conflicting advice and feedback.
• Each regulatory project, licensing process, or partnership cycle has a predictable dynamic where certain deliverables unlock the next logical step for you. This is why it is important to know where to focus instead of stretching yourself too thin.
• As an example, a client recently told me that their previous license with a previous project took several millions of dollars and 2 years, which when they worked with me and followed my recommendations, took about 6 months and no additional external consulting.

VIP User Experience

• Imagine, if you could only spend compliance resources, time, and money on transacting customers who make you money – wouldn’t it be wonderful?
• Anyone who has ever worked in FinTech knows that only about 30-50% of all customers who register with your platform will actually transact and make you money. The majority of the new account applications will remain dormant and incomplete forever.
• Therefore, a 100% review of 100% new accounts is not an ideal scenario.  In fact – it’s irresponsible and lazy thinking because it illustrates that you don’t actually take the time to understand which customers should be a priority for you, and you force your own compliance or customer support team to spend time on activities with very little future value.

Just-in-time Processes

• One of the biggest frustrations of many founders comes from the fact that the compliance team cannot provide timely feedback with respect to new business initiatives or new customer applications, because they are always busy with some mandatory reports, audits, inspections, or other documents they need to write. And what’s even more frustrating is when these audits and inspections are completed, there seems to be a lot of deficiencies and gaps, and mistakes that need to be urgently rectified.
• What I always recommend is that every company must have a set of standard reports, policies, and disclosures that typically satisfy 90% of all possible audits, due diligence reviews, and inspections, and you re-use these documents over and over again, which obviously requires less time of your team and less decision-making. I like calling it “just in time processes”
• For the remaining 10% of unusual requests, it is often possible to either substitute one evidence by another, modify the scope of what’s needed, or talk your way out of it entirely, by explaining why the request is not relevant for your business or type of activities.

Right Cooks in the Kitchen

• You need to have the right people in your compliance kitchen. It’s hard to get good people into any function, including compliance, and the most common mistake I see founders make is hiring compliance professionals just for their experience, credibility, and resume. And ignoring things such as attitude, personality or ability to communicate clearly and in a non-legalese way.
• A lot of founders feel their compliance is going to be in good hands if they hire ex- regulators or professionals with a long history of working at large companies or big consultancy firms, but truth to be told – I have never seen a FinTech project fail because of compliance or being shut down because of compliance.
• Yes, you can get into compliance troubles and overspend there, but it’s rarely terminal – it’s always either product/market fit, running out of money, wrong partners, poor timing, or bad leadership. And yet, founders keep thinking it’s compliance that’s evil and terrible. So, if you’re hiring a compliance professional who can’t sell you on why their function is amazing and brilliant – how on Earth are they going to demonstrate that to auditors, partners and regulators?

In a few short days, the new cohort of FinTech Compliance Helpline will begin to work with me with the goal to transform and scale their compliance function, reduce unnecessary compliance costs, and speed up their time to market. If you too would like to stay ahead of the curve and deploy just-in-time compliance principles,  click here to learn more and register or reach out if you have questions!