‘Financial technology’, or fintech, is an umbrella term that refers to the integration and use of technology in business to improve or automate the delivery and use of financial services and financial products.
Fintech can be thought of as a way to dematerialise credit or money. Ledgers, credit cards, cash points, money transfers between bank accounts, PayPal and Apple Pay payments are all forms of fintech in action.
The goal of fintech is to provide better safety protocols for financial services and to make these services more inclusive, flexible, easily accessible and less expensive.
Fintech is becoming increasingly important in the global economy, from basic mobile apps to advanced technology like blockchain, VR or AI. Financial services are increasingly being used and completed online by mobile phones, watches, and other smart devices.
Many technologies are revolutionising the financial sector, including:
- Cloud computing
- AI and Machine Learning (ML) – automated decision making in trading and financial analysis, fraud prevention and advanced chat-bots
- Cryptocurrency – decentralised digital currency which uses encryption to generate units of currency and validate transactions independent of a central bank or government
- Blockchain – simplifies and speed up payments and make them less expensive by cutting out the ‘middlemen’
- Smart contracts
- Application Programming Interfaces (APIs) – software which allows two apps to talk to each other
- Data analytics
Tech used by law firms
Different technologies have been around since the first industrial revolution, shaping the way we live and work. The only difference today is that disruptions caused by technology and some other factors, including the pandemic, are happening much faster, without leaving any time to prepare for and adapt to them.
As we are becoming digital natives, accustomed to the time-saving benefits of developing technology, the pressure is rising on law firms to enhance the services they provide to their clients.
Like the financial sector, innovation started with back-office system improvements, including cloud computing, digital dictation, document management applications and many more, along with flexible or remote working. Today these improvements have evolved, and law firms have become more effective in using technologies that streamline their engagement with clients too, such as:
- Client portals – improving client onboarding and regulatory compliance checks, secured communication with clients, document sharing, billing and payments
- Online contract creation based on client information input
- Video calls
- Use of chatbots for direct engagement with solicitors on demand
However, some law firms have recognised that innovation powered by technology presents an opportunity to increase access to legal services, by making them more affordable, while maintaining high standards.
In a climate where client expectation is to deliver more for less, most law firms became open to new ways of working and implemented new processes and technology.
There is now a huge opportunity to provide legal advice on activities that underpin digital technology (for example: NFTs, cryptocurrencies, blockchain) and fintech itself. Financial services regulatory advice plays a hugely important role in the market.
With the rapid growth of fintech, there are growing concerns about law firms’ understanding of the industry and their ability to meet clients’ demands.
The legal profession’s current involvement in the fintech sector involves areas of:
- Regulatory and tax law (domestic and international) – financial regulations (regulatory, compliance and enforcement issues when engaging in financial transactions), AML, anti-bribery, legality of a proposed business model
- Commercial law, IP/IT law and data
- Corporate law – M&A, joint ventures
- Cyber security
- Consumer’s protection
An NFT – ‘Non-Fungible Token’ – is a unique digital asset or item on the blockchain. Each NFT has data that makes it unique and is powered by a ‘smart contract’ that sets out any applicable conditions.
The value of NFTs for art and music has rapidly increased in the last couple of years, as demand for buying and selling NFTs is rising.
Some of the legal implications in connection with the growing commercial activities around NFTs include:
- IPR of an underlying art and rights sold
- Contractual liabilities and legal status of smart contracts
- Consumer protection
- Fraudulent trading
- Cyber security and data hosting
As interest in technology and what technology can do is growing, companies rely heavily on the understanding of regulatory and legal framework. Here, lawyers have a unique position to provide a full range of legal services to their clients.
However, evolving technology will inevitably:
- Increase financial regulations
- Create new legislation and case law
- Impact data protection and cyber security
- Raise intellectual property issues, for example IP issues in connection with AI.
Current legislative framework, fundamental principles and common law are firms’ only instruments to deal with the quick expansion of technology.