What to watch out for in lending and fintech from a legal perspective?

Legal insight from Lenvi expert Raja Khan, Paralegal

The truth is that it has been a rocky this past year for fintech from a regulatory and legal perspective. In this article, we look at the key legal and regulatory developments impacting the fintech and payments landscape in 2024. 

1. Regulation and more regulation
   This is especially relevant in the cryptocurrency space where there are significant legal developments taking place. For example, there have been a string of high profile cases in the last year or so which seem to suggest that judicial appetite to regulate these products has increased. This has also been met with greater willingness from the legislature on regulating these products. With greater awareness of the cryptocurrency world, it is only a matter of time before there is unified legislation on the regulation and control of cryptocurrencies. As such, in-house legal teams should be watching this growing trend closely as it is likely that incoming legislation may introduce a new list of hoops that the fintech may have to jump through. 
2. The omnipresence of cyber and AI risk
   According to the Global Risks Report 2024 as commissioned by the World Economic Forum, the risks relating to AI and cyber are growing. In fact, it was revealed in the report that cybercrime specifically was amongst one of the top risks. For the fintech industry, this heightened level of risk will be important to recognise as customer trust in this fast-moving industry is essential to maintain if the fintech industry seeks to break barriers in the consumer world as envisaged. 
   Considering data breaches and cyber crime are often linked with higher insurance coverage and higher liability caps, it is important to review these to ensure the fintech is adequately protected. It is also important to schedule regular risk strategy meetings with key stakeholders such as the tech team to review current procedures and to raise any red flags. 
3. High interest rates 
   It is no secret that low interest rates and a buoyant economy has greatly benefitted the fintech sector in the past, but with high interest rates set to remain, it is unclear if fintech providers are ready to weather the storm that is lurking ahead. 
   Sectors like consumer banking are much more likely to be affected as a result of the higher rates than others as it drives their overall cost of funding or lending operations. Also, a key consideration in this is the source of funding for different fintechs. For example, a large consumer bank has much better access to capital than a consumer facing fintech so it may be the case that the rise in rates may affect the consumer bank more than the fintech.

It is clear then from a legal perspective that the rough patch for different fintechs as a result of the above factors and many more, is set to continue in 2024. To combat the adverse effects associated with these changes, it is important for an in-house legal team for any fintech to remain vigilant, aware and actively pursue legal strategies to mitigate these risks.