Fintech: Taking the Leap
We did not realize we had Fintech clients until we discovered the term only a couple of years ago. Granted, in hindsight, we had a vague understanding that they were different from our conventional financial services clients. We had to do more research and ask more questions than usual to better grasp what these firms were doing. In 2008, we did not know these companies would eventually warrant their own category within the financial services industry. However, over the course of the last decade, we watched firsthand the growth of both the industry and its need for AML and compliance professionals. This increase in demand for talent has coincided with more regulatory scrutiny and obligations. Staffing became a front and center priority. As Jim Candelmo, chief anti-money laundering (AML) officer at Capital One, says of Fintech companies: “They are going from a simple advantage due to a lack of regulation to a regulatory landscape that has expanded. They will now seek competitive advantage since they are forced to compete for the same resources.” What once was purely a necessity (and possibly a burden) is now seen as part of the business strategy and vital to product creation and risk mitigation. Strong AML and compliance programs sell well to potential banking partners, enforcement-happy regulators and investors.
One of the results of the Great Recession was that many smart people decided there had to be other ways. Other ways to get a loan, other ways to transfer money, other ways to invest, other ways to pay and even other ways to define money. A prominent number of Fintech startups are in the emerging payments and alternative remittance space. For example, some provide more efficient and cost-effective ways for small businesses to pay employees on the other side of the world, others allow people to send money home to their families without incurring onerous fees, and others give people the chance to pay for life’s expenses with Bitcoin (or Ethereum, Litecoin, etc.). Whatever the product or solution, money laundering, financial crimes and terrorist financing are still major risks and even bigger risks, as some might say. You cannot forget that the regulators are aggressively supervising their constituents, and Fintech companies are at their mercy, too. The formal relationship between state and federal regulators and Fintech companies has been hazy, to say the least. Which regulators supervise which types of companies? What do you do with cryptocurrency companies (New York State took the lead on that with the BitLicence)? Over the last five years, the Fintech regulatory framework has evolved into something more cohesive, but not comprehensive. However, regulatory agencies (the Office of the Comptroller of the Currency) and states are starting to proactively clamor for more regulatory certainty and control through charters and civil legislation. As a result, enforcement actions and fines have become more prevalent over the last few years. For instance, in 2015, Ripple Labs was fined for not having the required licenses needed to transmit money. In 2016, the Consumer Financial Protection Bureau fined Dwolla for false representations about their cybersecurity practices and LendUp for violating lending laws. Lastly, PayPal was fined for deceptive credit practices and sanctions violations in 2015.
Today, AML teams are not only maintaining the integrity of the legacy system, but they are also playing a significant role in the creation of the next generation of financial services firms. Aurora Harsher, the director of recruiting at Coinbase, a digital currency wallet and exchange, said, “We did not initially look to legacy banks for AML candidates because the average AML candidate from a legacy bank was, at the time, skeptical of digital currency. As we scale and gain recognition from legacy banks, these candidates’ skills are highly valuable in building our compliance program.” As is the case with everything these days, the recruitment landscape in the Fintech space is going to change quickly, whether you are discussing IT or AML needs. However, there are unique aspects of Fintech AML and compliance recruitment.
The recruitment process at Fintech companies is as diverse as the products and solutions they provide. From the agency perspective, the ultimate difference between recruiting for Fintech and legacy roles comes down to one of the more overused terms in workplace vernacular these days: “culture fit.” The term is a cliché, for sure. I can bet at some point recently you heard someone say, “I liked them, but they just weren’t the right culture fit.” However, for recruiters, culture fit is an all-encompassing phrase for the fundamental qualities that differentiate the Fintech environment. Although culture (and mission, vision and values) permeates the halls of all companies—new and old—culture is almost a tangible concept at Fintech startups. The Fintech and blockchain guru, Juan Llanos, says when hiring, “I incline toward culture (or fitness and adaptability) than technical skills. The three skills—passion, common sense, and [the] ability to learn fast—equip people to adapt to any culture. To me, these are non-negotiable. Everything is teachable, except those three soft skills.”
The culture and subsequently the recruitment process at Fintech companies have evolved significantly over the last decade. Fintech and startup companies, in general, seem to be embracing a formal in-house recruitment team and process, as well as, a human resources function at earlier stages in their development. But, when you boil it down, offers are extended to candidates that are the right culture fit and either have the right technical experience or the ability to learn the needed technical skills. You would think that technical skills are most important to a Fintech company. Harshner added: “Culture fit is incredibly important, and is just a big consideration as technical skillset for candidates. Our culture guides us on how to make decisions and treat one another. So, finding people who embody our culture, especially as we scale, is crucial.”
In this case, culture does not mean company happy hours every Thursday, or ping-pong tables and beanbag chairs, or free lunch and dinner (well, sometimes it does). Culture is a collective of all the characteristics of an office environment that facilitates people taking a company from an idea to a solution as a team. For instance, Fintech Startup, Inc. believes in an agile workforce that can adapt quickly to market forces, in long hours at the office and being plugged in 24/7. In addition, Fintech Startup, Inc., has a hotel seating arrangement to foster relationships and communication across verticals, provides reimbursement for continuing education and does not have corporate titles to encourage a flat and equitable organization. So, while recruiting candidates to their AML and compliance teams, Fintech Start-Up, Inc. is not asking, “Can you do the job?” Instead, they ask: “Can you do the job here?”
For AML and compliance professionals, the major differences between working at a Fintech company and working at a legacy institution fit into two distinct categories. As we just discussed, the first pillar is general culture. If you ask any hiring manager within any vertical of almost any Fintech company about hiring, you will hear about the importance of cultural fit to overall success. Start-ups define the values that make up their culture, so that they can hire well and consistently. Good hiring fosters a learning organization because employees buy into the objective quickly and get to work with like-minded colleagues. The hiring continues, which creates a self-propagating cycle. Because learning organizations strive for adaptability and flexibility in their marketplace, a large majority of Fintech companies foster a team-oriented, mission critical environment, so everyone is moving in the same direction. Fintech entrepreneurs who believe technology is the panacea for all inconveniences and inefficiencies, are dedicated to disrupting industries or providing alternative choices. They want to be the first (or the best). As a result, all employees, including those in AML and compliance, must be hyperfocused on the higher purpose. The team at Circle Financial, a P2P payments technology firm, believes “culture fit means to be passionate about the business and aligned with the goals of the compliance function. Strong candidates are those who can be creative and develop solutions and do not need to be micromanaged. While subject-matter expertise is important, so is an understanding of the business model and a passion for the company’s vision and growth. Candidates should be able to view the big picture program as well as their individual role.” So, you better move fast, fail quickly, learn immediately and adapt swiftly. If not, maybe you should find another job. The use of the word, “cult,” with a positive connotation is not uncommon.
Compliance Culture and Philosophy
The second category is the company’s compliance culture and philosophy. From a philosophical standpoint, Fintech AML programs are always trying to streamline, scale and improve. The term, Compliance 2.0, has become popular in Fintech circles. Compliance 2.0 represents a new way of attacking financial crimes and dealing with the more mundane and rote activities in maintaining regulatory compliance through technology. An internal recruiter at a Fintech company provided insight from a recruiting perspective: “AML is built upon a lot of structure and rules, so I tend to see a lot of applicants who don’t have the ability to think outside of the box. In order to remain relevant, I think AML professionals need to remain open-minded about how technology is changing from finance 1.0 to finance 2.0.” Her viewpoint is not only common in the Fintech world, but also inspired the creation of a spinoff industry of Fintech called RegTech. John McCarthy, the former CCO of AirBnB and the current deputy BSA officer of Bank of the West, explains the difference from his personal experience: “A Fintech AML professional must first be a nimble risk manager with a broad understanding of the intersection of technology and business. They also must be much more strategic thinking than a traditional AML professional, even at very junior analyst levels.”
From a compliance culture standpoint, the communication dynamic, the value of compliance and the relationships with regulators are in the spotlight. A former CCO of a Fintech company said, “The cultural difference between banking and Fintech stems from banks starting as banks and moving into tech innovation; while Fintechs start as tech (innovation) and then move into ‘fin’ (financial services). Because of this difference, you must explain to fintech companies how regulators think and work.” Regulators and the legacy system will slow growth, not speed it up. Please ask all the compliance officers who have worked on getting state licenses for their Fintech and startup employers about their experiences. You can bet that being the person to advocate for slowing things down is a lonely place. Sometimes, the momentum and will to grow is too strong to stop. As the head or a member of an AML and compliance team, are you willing to ask for forgiveness from the regulators and not permission?
Nascent companies in initial stages of development (approximately one to five years from inception) deal with ambiguity in their processes, protocols and communication. AML and compliance professionals will need the ability and know-how to function properly when the business operations are fluid and amorphous. Unlike a bank, Fintech startups do not have a lot of formal structure. In addition, AML and compliance will have to push back against the business lines, deal with delicate situations where no right answer exists, and be confident in times when your peers think you are an obstacle and not a facilitator. This should sound familiar to all compliance professionals. Lastly, will the company exist in a year? The risk of failure is always imminent, especially when you work for a startup in a startup industry.
The increase in demand for anti-financial crimes experts has increased across the whole financial services industry. What makes this increase interesting in the Fintech (and RegTech) space is the nexus that exists between the old and new. Common money laundering and terrorist financing risks are exacerbated by novel ways of using technology for moving money around. This nexus has also created a new employment market for AML, sanctions and compliance professionals at all levels. Rule 504 will also bring Fintech companies further into the regulatory fold.
Fintech companies are not simply financial services firms that exist only online. Fintech is an industry that asks, “What are the obstacles and resistance points in the movement and investment of money and how do we eliminate them?” We work with firms that are planning on upending the 401(k) and 403(b) savings industries, so people can retire wealthier; transportation startups that want to make getting from one point to another as easy as pressing a button while giving thousands of people an extra source of income; blockchain startups that believe transactions and contracts do not require a middleman (or escrow) to guarantee trust; and P2P marketplaces that open up new sources of financing to pay down debt or open up small businesses. The sense of purpose and the passion that Fintech companies share are attractive selling points to legacy banking and money services business professionals looking for something new. Whether you are excited about or doubtful of the Fintech space, you should study how your particular niche in financial services is affected. Most importantly, be aware of the technological disruptors in not just financial crimes compliance, but also financial services, in general. You will be competing for employment opportunities with people you never expected, so you must have an understanding of what companies are looking for in talent now and in the future. Llanos, Fintech and RegTech lead at ConSenys, adds another dimension to the discussion regarding AML hiring trends. He says, “There’s demand for candidates with process or horizontal skills, not with the vertical discipline of AML (or others). Subject-matter expertise is less critical in a fast-changing, high-tech environment. Someone with skills such as project management, agile product/software development, information design and statistical analysis is much more valuable to me than someone with 10 years in AML compliance.”
Startups of any kind are not for everyone and could possibly be a reckless employment choice for some AML and compliance professionals. Newly created companies in newly created industries experience many peaks and valleys that lead to layoffs and changes in staffing priorities. On top of that, Fintech companies usually structure compensation packages differently than their legacy counterparts. Remember, cash is king at startups and companies are much more likely to offer long-term incentives over high base pay immediately. These incentives usually come in the form of options and restricted stock that triggers when an equity event occurs. So, do not be surprised if you start getting calls from recruiters offering you less salary for more work. Plus, startups have unique cultures that do not appeal to all. So, please be cautious when considering an employment offer from a Fintech or RegTech company. The new frontier of financial services comes with the risk of failure. But, we also encourage all readers to study and appreciate how technology is affecting their industry, their knowledge, skills and abilities, and future employment opportunities. Change is certain.
Overall, our experience in recruiting for Fintech has been eye-opening, educational and a mix of fun and frustration. The future of financial services is truly exciting and the participation of a whole new generation of millennials and digital natives will make financial services super-efficient and inclusive. Billions of people who have dealt solely in cash will be able to be part of the global structure, which, in turn, will create an even more globalized economy and social system. From a recruitment standpoint, uncertainty has turned into confidence. We have enjoyed working with Fintech and alternative financial companies because of the passion, excitement and novel products. However, change is messy. And, at first, the recruitment process and required candidate qualifications—going back to 2009 and 2010—were changing almost every day. What do you look for in AML and compliance professionals in a new industry lead by entrepreneurs, who are more technology-focused than financially focused? The answer to that question has evolved right before our eyes. Of course, legacy professionals have become a bigger target and focus for Fintech companies. Regulators have become more interested in and engaged with supervising Fintech companies and the value they place on consumer protection and financial crimes compliance. However, interviewing with and recruiting for Fintech companies is an arduous process. As discussed, the maintenance of culture is imperative at startups, so interviewing can be long and painstaking. But in the end, the best AML professionals are risk-sensitive and aware and so are Fintech companies. In closing, McCarthy sums it up best: “I strongly recommend any AML professional that has not participated in both areas to do so. While there is high risk in making the leap, it is a wonderful experience—both personally and professionally—that makes you a better compliance and risk manager.”
Sanjeev Menon, senior practice area manager, Infinity Consulting Solutions, Inc., New York NY, USA, [email protected]
Zach Plotkin, senior practice area manager, Infinity Consulting Solutions, Inc., New York NY, USA, [email protected]
John Liberatore, regional director, Infinity Consulting Solutions, Inc., Fort Lauderdale/Miami, FL, USA, [email protected]