fivehundred magazine > Practice area spotlight: Fintech > Technology outpaces legislation

Technology outpaces legislation

The Ukraine’s regulators are ready to cooperate with the business in search
of compromise, says Sergii Papernyk of Evris Law Firm

Please give us an overview of the current legal market in the Ukraine and how any recent developments have impacted your practice?

At present, the legal market in Ukraine is characterised by the high level of competition that makes law firms look for the new niches of economy and develop those practices that have not existed before. At the same time the rapid development of technology creates the demand for the legal services in those areas of activities that are new for the society and often not regulated by the legislation.

Taking into consideration the above circumstances, our law firm decided to develop along with the economy and technology in the state rather than make too much of the traditional legal services.

The legal due diligence for companies in the area of fintech has become one of the first new directions for our company in the field of jurisprudence. We definitely understand that innovations that are implemented by the fintech start-ups may not be subject to the existing legal rules. However, we consider striking a compromise between existing legal regulation rules and the new idea underlying the start-up as our main task. We need to prepare a contractual framework and obtain those necessary licenses that would allow a fintech company to operate immediately without expecting the legislative amendments.

What significant trends exist in the fintech market presently? Are you seeing these just domestically or internationally as well?

Taking into account the legislative amendments to be adopted in the near future, we expect the rapid development of the payment services and online credit financing in Ukraine. In addition, many banks in Ukraine stop deeming the fintech start-ups to be a threat and direct competitors and enter into cooperation with them. Actually, this process is also a global trend that allows to move forward the financial technologies industry.
It seems clear that it is impossible to continue to ignore the non-banking financial services, however, the classic banks are not keeping up with the innovations and are at risk to be left behind the fintech progress. Thus, the tactics of cooperation with fintech start-ups is the most viable strategy. This strategy is also the most profitable for the fintech start-ups allowing the developers to get financing for the implementation of their ideas.

What are the three biggest challenges to practicing fintech in the Ukraine at the moment?

Today, one of the biggest challenges for the fintech start-ups in Ukraine is avoiding the reputation of the company that provides servicing to shady schemes and launder money. Recently the payment systems have been blamed for making payments out of the governmental control, in particular tax authorities. This refers to the settlements in cryptocurrencies either. Such reputation is formed due to misunderstanding of the technology underlying the fintech project by the regulators and has to be overcome for the successful development of the fintech industry.

The other big challenge for fintech in Ukraine is finding solutions that may be used in the local market. Many young developers of the fintech in Ukraine see the realisation of their idea exclusively within the US market (for instance) where it is easier to find the financing than in our country.

Thus, Ukraine is often considered as the jumping-off point for the start and initial location of the development team. Though sometimes the Ukrainian market is not considered as the location for the implementation of the project at all.

At the same time, it should be taken into account that though the US market is far bigger than the Ukrainian market, it is much more saturated with the competing fintech companies.

In my opinion, the big challenge for fintech startups is overcoming the inner desire to get fast money from the investor today instead of implementation the project in the Ukrainian market in order to get high profits in future.

The start of cooperation with the commercial bank may be considered as the third challenge. By integrating the fintech solutions in its services system the bank deprives the developer of the great part of his rights. It is self-understood that it’s hard to lose control over its own fintech project. However, sometimes taking such a step is the only way to have FinTech project brought into effect instead of its existing only theoretically. Hence, the fintech start-uppers have to learn to make right decisions with respect to such cooperation.

How does fintech fit into the firm as a whole? Is it easy to collaborate with other teams?

The fintech practice organically fits into the company operation in general, especially if every team member realises that now is a period for the new ideas and new services.

What advice would you give to the next generation of fintech lawyers?

They should never be afraid to make non-standard decisions even though the relative legal acts or the judicial practice are not available. They should get used that the new technologies significantly outpace the legislation, and it will always remain so. At the same time, even in the situation of full uncertainty a lawyer has to find solutions to protect the rights of a client.

What are your predictions for fintech in the Ukraine over the next five years?

It is hard to predict the industry that is developing faster than you are reading this text. Especially over the next five years.

However, for the last years it has appeared that the regulators in Ukraine are very loyal towards the innovations and ready to cooperate with the business in search of compromise.

At the same time, the development of cryptocurrencies in 2017 has proved that Ukraine has one of the best schools of blockchain-solutions developers, which is respected by the international community.

Taking into account the above-said factors I believe that Ukraine will be one of the fintech industry world leaders in the near future.

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