These organizations develop apps designed to help consumers make more of the aggregated data held on them by all the financial institutions they are associated with. For example, an app can give users a better overview of all their accounts, perform credit checks more easily on individuals and businesses, or simply provide access to loans from multiple sources.

The implications of open banking for fintechs are huge, as it enables ready access to the largely loyal customer and member bases of institutions as well as collaborative partnerships with highly regulated financial institutions. For financial institutions, there is the opportunity to deliver the mobile apps that consumers increasingly want to use – without the need to necessarily build them in-house.

Open banking is therefore driving innovation – there's no doubt about it. Fintechs can provide a layer that sits in front of banking systems and plug into open APIs. Smart, traditional financial institutions increasingly see the existence of fintechs as an opportunity to build an ecosystem of apps that help retain core banking loyalty, rather than as competitors focused on stealing customer or member business.

The increasingly globalized world we live in brings with it significant regulatory challenges for traditional financial institutions. As such, international institutions are increasingly struggling to adapt to the raft of regional regulations that significantly impact their operations in specific territories, but have negligible impact on them in others.

Unraveling the different requirements of the regulatory landscape is a complex task. Our approach is often to look above the regulatory requirements of one country to understand where there is a higher level or broad-brush framework that encapsulates multiple regions.

If we are talking to an institution about compliance with a local set of requirements, we will look for the broader umbrella regulations or standards that are out there that effectively supersede them or operate at a much higher level. We then find that we have ticked the compliance box in terms of the requirements that a particular region has, along with multiple other territories.

Another aspect of this is to focus on the most challenging and difficult to meet levels of regulation. One example is the recently introduced General Data Protection Regulations in Europe, which effectively replace the patchwork of local data protection laws that existed beforehand. Requirements in other regions of the world are not quite so stringent or advanced. If you can demonstrate that you can meet these stricter standards and criteria, financial institutions can be comfortable that you can meet whichever regulations exist in other regions.

It's a different story in Asia, where regulations can be more country-specific. While regulations in Europe cover the whole region, in Asia they will apply to individual countries and can be so strict that, as is the case in China, restrictions discourage some bigger institutions from operating there altogether.

However, it's clear that in Asia there is a mixed bag between some markets with limited levels of regulation and others that are relatively strict. When the bar is set too high, institutions will default to other areas of Asia that have a less stringent regime. But operating within the boundaries of those different countries' regulatory frameworks is clearly still vital.

By partnering with collaborative fintech providers, financial institutions can make the technological changes they need to comply with new regulations, whether that relates to open banking or broader regulatory risk regimes. And by adopting a flexible and best practice approach to meeting new standards and regulations, they can help ensure compliance with the latest guidelines and rulings springing up in every corner of the globe.

Despite the exciting opportunities that fintechs can provide, financial institutions still need to be careful to complete their due diligence when it comes to selecting the most appropriate fintech to partner up with. Existing legacy systems cannot be ignored or by-passed altogether, so potential partners must have the capability of working alongside, not against them. To err on the side of caution when it comes to financial loss and reputational damage means to seek partnership with fintechs that instil credibility and have an ability to scale up with the institution's customer or member demands. This scalability is important. Choosing the right fintech partner is not all about looking at the technological functionality they bring. Some very innovative apps and solutions in the market today are backed up by a small team that is delivering the solution and may not have the depth of capabilities to service the individual needs of the institution.

If the past decade of economic unrest has taught the financial services industry anything, it is that the only constant is change itself. The quest for greater transparency, responsibility and accountability means that operating within the constantly shifting sands of the regulatory compliance framework truly is the new normal.

Russell Bennett

Russell Bennett is Chief Technology Officer for Fraedom. He can be reached at 44-0-2070-923410.