Compliance-driven disruption: how regulation creates new market leaders

In the global financial landscape, regulation is often seen as an obstacle - a set of barriers that impose additional costs and limit innovation. However, this perspective overlooks a crucial aspect: for visionary companies, regulation can be a powerful driver of transformation, a mechanism that not only redefines the rules of the game but also opens doors to new business models and growth opportunities.

The convergence of innovation and compliance has been a decisive factor in the rise of new market leaders. Regulations such as PSD2 in Europe, LGPD in Brazil, and the regulatory frameworks for Open Banking and Open Finance in various parts of the world have not only imposed new requirements but also created space for disruption. Companies that quickly understood regulatory changes and adapted their business models to this new reality gained a competitive edge, establishing relevance and redefining industry standards.

In this article, we explore how regulatory changes are leveling the playing field, allowing fintechs and new players in the payments sector to challenge major institutions.

Regulation as a platform for innovation

The introduction of new regulations has played a crucial role in the global financial sector, fostering innovation and increasing competition. Rather than being mere bureaucratic obstacles, these rules often create the necessary conditions for new companies to compete on equal footing with established institutions. When well-structured, regulation drives infrastructure modernization, accelerates the adoption of new technologies, and paves the way for innovative players to enter the market.

However, in highly regulated and high-risk sectors such as financial services, payments, crypto assets, gaming, and online gambling, these regulations take on an even more critical role. In these industries, well-designed regulatory frameworks act as catalysts for innovation, ensuring a secure environment for experimentation and the development of new products.

Investing in compliance has proven to be advantageous for fintechs worldwide. According to McKinsey, as of July 2023, publicly traded fintechs worldwide had nearly doubled their market capitalization compared to 2019, reaching $550 billion. During the same period, the number of unicorns in the sector jumped from 39 to over 272, with a combined valuation of $936 billion. These figures highlight that regulatory compliance is not just a requirement, it is a driver of sustainable growth.

The impact of regulations on high-risk sectors

In sectors such as finance, crypto assets, gaming, and online gambling, well-structured regulations play a dual role: they mitigate risks such as money laundering, fraud, and misuse of data while also fostering a more competitive, transparent, and trustworthy environment. Companies that operate within a solid regulatory framework not only avoid penalties but also enhance their credibility and attract more investors and customers.

This impact can be observed across different regulatory areas:

• AML (Anti-Money Laundering) & KYC (Know Your Customer): Companies must comply with regulations such as the Anti-Money Laundering Directive (AMLD) in the European Union, the Bank Secrecy Act (BSA) in the United States, and Brazil’s Prevention of Money Laundering Law (PLD) to ensure robust identity verification and monitoring of suspicious transactions.
• Crypto asset regulations: With the growing adoption of cryptocurrencies, regulations such as the Markets in Crypto-Assets Regulation (MiCA) in the European Union and guidelines from the Financial Action Task Force (FATF) impose new transparency and transaction-tracking requirements.
• Gaming and online gambling: Jurisdictions such as the UK Gambling Act in the United Kingdom and the Malta Gaming Authority (MGA) require strict licensing and ongoing audits to ensure fraud prevention and player protection.
• Data protection and digital identities: Regulations such as the General Data Protection Regulation (GDPR) in the European Union and Brazil’s General Data Protection Law (LGPD) impose restrictions on the use of personal data, directly affecting companies that rely on large volumes of data for risk analysis and service personalization.

With the rapid growth and adoption of artificial intelligence, global initiatives are also emerging to regulate this sector, ensuring protection for both businesses and consumers.

What to expect from the future of regulation?

The future of highly regulated markets will be shaped by increasingly stringent oversight, driven by technological advancements and the need to ensure security, transparency, and competitiveness. Regulators worldwide are expanding their requirements, strengthening controls over artificial intelligence, and establishing new standards for digital identities and biometrics.

The ability to respond swiftly to new regulations can define a company's success, allowing it to operate securely, build trust, and expand its operations without disruption. In this scenario, having a partner who understands the complexities of global compliance is essential. That’s why working with a strategic partner like FacilitaPay is a game-changer. We combine technology and regulatory expertise to ensure our partners are always ahead of the curve, operating with exceptional agility, tracking regulatory changes in real time, and implementing solutions that guarantee compliance without compromising operational efficiency.

Regulation does not wait, and being prepared means turning challenges into growth opportunities. Speak with our specialists and ensure your company stays ahead of the curve.