November 02, 2022

I love to talk with people who used to do traditional bank compliance work and are now leading compliance for fintech firms. I think they are the front edge of a new wave of innovators who will completely transform compliance – and also finance – over the next ten years.

Today’s guest is a wonderful example. Ed Guerra is Chief Compliance and Bank Secrecy Act Officer of Zero Hash, a five year old firm providing a B2B platform through which financial companies can offer crypto services to their customers.

When we think of financial innovation, we think of fintech products. However, the products are not the only thing that’s changing. Underpinning these redesigned services is a huge wave of innovation on how best to make sure the products comply with laws and regulations. Because fintechs are tech companies built around modern technology and digital data, they have compliance capabilities that exceed those of most traditional companies.

In our conversation, Ed points out the widespread misperception that fintechs aren’t regulated. While it’s true that they aren’t usually examined onsite the way banks are, they are still legally required to follow the same rules as the incumbent industry when they offer the same kinds of products. However, because fintech is often mold-breaking, there are many questions about how the old regulations actually apply to them. Certainly some fintechs have tried to exploit this regulatory ambiguity, but most today – especially as the sector scales up and matures – want to follow the rules. Ed notes that Zero Hash has 150 employees, of which 27 are compliance personnel, a ratio that reflects taking compliance seriously. Too often, however, fintech firms can’t be sure of exactly what they’re required to do, because the technology innovation is outstripping the capacity of lawmakers and regulators to keep pace. This challenge affects clarity both regarding the products offered by fintechs and regarding the third party risk rules that apply to firms working with banks. Ed sees an urgent need for more clarity.

He talks about the built-in advantages that fintechs bring to reducing friction and responding nimbly to the needs of customers, and he gives examples of fintechs solving many of the financial inclusion challenges that have characterized traditional finance. He also argues that tech innovation is challenging the old assumption that compliance is in tension with business goals – a drag on profitability and speed-to-market. A whole new compliance paradigm is emerging in these tech firms, because the compliance, itself, is reaping the benefits of better technology – better data, more transparency, timelier information, and nimble digitized systems. These are game-changers. They raise the realistic prospect that, in the coming years, we will drive most non-compliance out of finance. Noncompliance will either be prevented, or if it happens, it will be instantly detected and fixed.

In the process, compliance will become integral to business success, winning customers’ trust, and also attracting tech talent. Compliance will be cool.

Ed closes with a personal story about the banking challenges that faced by his own parents, who migrated to the U.S. from Mexico, and how his childhood experience inspired him to come into this profession. As I said, I love talking with forward-looking compliance people.

More on Ed

Ed is Chief Compliance and Bank Secrecy Officer of Zero Hash. He has over 20 years of experience in regulatory, financial, and professional services work, including in the fields of corporate governance, risk oversight, and compliance. He has performed domestic and international investigations on behalf of the U.S. Securities and Exchange Commission detailing fraud and Financial Crimes. He led the global consolidation and alignment effort of Corporate Risk and Compliance functions for the largest IPO in U.S. history. He also developed and implemented the first ever Enterprise Risk Management and Sarbanes-Oxley compliance programs for the U.S. Federal Reserve’s Twelfth District.

More for Our Listeners

We have great shows in the pipeline. I’m excited to say we have a show coming up with Todd Harper, Chairman of the U.S. National Credit Union Administration. We’ll also have a very special conversation at Money 2020 with Cleve Mesidor of the Blockchain Foundation and Delicia Hand, formerly of the CFPB and now with Consumer Reports, on how well fintech is doing in closing the wealth and financial access gap for women and people of color. And we’ll have, separately, three of the best people in the world to help us look ahead on crypto and defi: Tomicah Tomilson of Haun Ventures, Jai Ramaswami of Andreesen Horowitz, and Simon Taylor of Sardine.

I enjoyed seeing many of you at Money 20/20 last week week, and many more this week at the Singapore Fintech Festival. I’m also looking forward to speaking at the Financial Technology Association’s FTA Fintech Summit in Washington, D.C. on November 16, and David will speak that same day in New York at the Regtech Insight Summit. We hope lots of you are able to join.

Registration is now open for our November 30 convening for Minority Depository Institutions in support of our MDI ConnectTech Initiative. Space is limited, so act fast! 

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