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FinTech Funding: When Should You Get Regulated?

What is critical for the early stage FinTech businesses is how they decide to utilise the funding that they receive. Prioritising spending is particularly important after seed investment rounds. FinTechs will usually focus their own investment into further developing their product, or investing in building their brand reputation with advertising and marketing campaigns.

Too often though, FinTechs overlook the importance of ensuring that their product is compliant with financial regulations, either opting to utilise the perceived regulatory safety of third party providers, rely on a narrow regulatory exemption, or simply ignore regulation altogether in an attempt to avoid legal costs. This can often prove difficult when these FinTechs attempt to expand their offering or attract outside investment, where they may find that their business may be insufficiently compliant, dependant on the area of business they are in, or the extension of the service they are offering.

For example, many may be caught out by regulations such as the Payment Services Directive, currently being updated with effect from January 2018 with a narrowing of existing exemptions. Crowdfunding websites, a popular source of funding for some FinTechs, will also need to consider MiFID (and subsequently MiFID II, effective January 2018), as well as AIFMD and FCA Peer to Peer lending rules.

Speaking at a recent FinTech start-up event, attended by Charles Russell Speechlys, Piotr Pisarz, Investment Manager at DN Capital reinforced this, by saying that “no serious investor is going to put their money behind a firm which doesn’t fully comply with regulations.”

Being a regulated FinTech business certainly helps to form a base by which investors can be confident in a future return. Failing to do so could lead to serious issues later in your growth cycle which may end up costing even more.

In the same recent FinTech start-up event, Sandeep Bathina, co-founder and COO at StockViews, who has extensive experience in forming FinTech start-ups, said “FinTech firms should recognise regulatory requirements early in their start-up phase… even if this is a large proportion of the seed funding you have been able to raise, regulation should come first and you can build a successful business from that…”

Ensuring that you are legally compliant from the off will enable you to build your business successfully and ensure that you have no issues with both the law and future investor confidence.

Charles Russell Speechlys has a highly experienced team of regulatory lawyers, with extensive experience in helping FinTech businesses to ensure they are sufficiently compliant with regulations. If you feel that this route is for you, please don’t hesitate to give us a call and we would be happy to talk you through your options.

Contact: Kate Troup, Partner at Charles Russell Speechlys T: +44 (0)20 7427 6726 [email protected]


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