Myths about "safe" fintech: Debunked with Antwort Law

Many entrepreneurs appreciate fintech for its speed, flexibility, and simplicity. However, these platforms have a fair number of pitfalls that are unnoticeable from the very first moment of use. As lawyers at the international consulting firm Antwort Law, who work daily in the banking sector, we see where the risks of using such solutions grow disproportionately to the benefits they offer as alternatives to traditional banks.

The first myth we'll dispel in this article is quite common among users. Fintechs are known to act as intermediaries between businesses and banks, so their clients who experience account blocking assume that the banks are behind it. However, in practice, this is not the case: fintechs are required to comply with AML (anti-money laundering) laws; KYC/KYB; sanctions lists; and card system regulations (Visa/Mastercard); Local regulators, and fintechs, typically even stricter than banks, face higher operational risks and less margin for error. By law, fintechs can:

• freeze funds without explanation;
• unilaterally close an account;
• hold funds for 90-180 days "pending risk assessment";
• refer data to the regulator if transactions appear suspicious;
• deny withdrawals at any time if transactions appear atypical.

The second common myth among entrepreneurs is that once an account is opened, the hardest part is over and there won't be any problems. Unfortunately, the opposite is true: opening an account with fintech isn't as difficult as with a traditional brick-and-mortar bank, but problems can arise during the active operations phase. The fact is that fintech is not designed to store capital (that's what banks are for), but rather as an active wallet for highly specialized transactions. Once these operations are launched, the payment platform begins its analysis. For example, there have been sharp fluctuations in turnover; payments in high-risk countries; transfers between related companies, or no supporting documents are attached; unclear payment purposes are indicated; or the account is used for other purposes, not for payments, but for storing funds.

The third myth is very simple: a fintech with an IBAN and a mobile app is essentially the same as a bank, only faster. In reality, there are many differences between a fintech and a bank. The most important is that a bank has a banking license, and the funds in the bank are covered by government guarantees (for example, even if the bank goes bankrupt, the funds legally belong to the clients under their guarantee). Banks are also required to explain their actions to clients and conduct thorough compliance before blocking. Fintechs, however, do not use banking licenses; clients' funds are not held by them, but in segregated accounts or with partner banks, and, accordingly, these funds are subject to different asset protection rules. Fintechs can also instantly deny service to an account, even without justification or discussion.

Myth 4: Fintechs are lenient towards high-risk clients. This belief is based on the fact that traditional banking institutions often refuse to open accounts for such clients, while fintechs are more willing to open accounts. However, this is only at first glance; in practice, fintechs are even more sensitive to high-risk businesses because they depend on the bank, and if the bank finds something suspicious, it's easier for the fintech to immediately close the account without explanation or discussion with the client.

So what should entrepreneurs do: avoid using fintechs because of the potential risks? In fact, fintech should be viewed as a business tool just like other financial products. The key is to understand these platforms, their logic, and adhere to the following rules:

1. Don't send payments between related companies without confirming the connection and logic.
2. Use one account for different types of activities.
3. Incorrectly specify payment purposes and ignore transaction descriptions.
4. Work with "risky" PSPs instead of a bank account.
5. Lack of a unified payment logistics map makes transactions appear chaotic.

At Antwort Law, we identify weak points and fine-tune transaction logic to avoid raising suspicions among fintechs and banks. This is achieved by creating a map of money flows between jurisdictions, companies, and end recipients, which helps fintechs and banks understand the business logic, avoid treating transactions as anomalous, and approve payments faster. If your account has already been frozen, we prepare explanations, conduct negotiations, and advocate for the client at the regulatory level. Contact us for a free initial consultation.

Lidia Ivanova

International lawyer
Antwort Law