Having seen the start-up ecosystem closely for nearly a decade, a vexing question persists: what concoction of misguided principles plagues the minds of some of the founders? Failures are acknowledged as stepping stones to success. But arrogance that grows with faulty metric of valuations is dangerous. Regrettably, recent years have witnessed a recurring saga —a founder, initially propelled by confidence, erects a start-up on a visionary premise, secures investments, but then descends a treacherous path of expedient tactics. This descent is fuelled by the insatiable thirst for inflated metrics, rapid growth, and astronomical returns, culminating in a landscape strewn with the wreckage of once-promising ventures.

In the world of financial services, a strong reminder needs to resonate among fintech entrepreneurs: regulators are not to be patronised. There’s no room for grandstanding or superiority complex, when your innovative aspirations are tethered to the regulatory nod in the tightly governed space of finance.

Attempting to lecture regulators on how they should conduct their regulatory duties is nothing short of fool’s arrogance. Regulators, seasoned professionals well-versed in the complexities of their domains, do not care about or benefit from unsolicited global-gyaan from entrepreneurs or any investors, trying to preach about their virtues or how to steer the sector. This misguided attitude towards regulators stems from the position of enterprise valuation and perceived network of influence.

In reality, it reflects a profound lack of understanding and appreciation for the depth of knowledge and experience regulators bring to the table. Ignoring this not only undermines the regulatory process, but also exposes a foolhardy overestimation of one’s own capacity to comprehend the intricacies of sectors governed by regulatory oversight. Regulators, often underestimated, aren’t mere bureaucratic gatekeepers. They possess a profound understanding of industrial shifts, societal dynamics, and market repercussions. This includes their eagerness to learn about all things about emerging technologies.

Another common trend visible is the incestuous circle formed by a small group of investors, and founders often sharing similar high-profile academic or consulting backgrounds, perpetuates a concerning culture within the startup ecosystem. Probably they harbour the belief that their connections within political or bureaucratic systems grants them leverage to influence regulatory frameworks. Moreover, the current pattern of regulatory capture as investors strategically engage retired regulators on their boards and advisory boards, adds to their belief that their inclusion can facilitate navigation and exertion of influence over current regulatory system. No wonder, that these foster a sense of superiority over the current regulatory stakeholders.

To build actual mutual trust, the industry needs to break free from its own echo chamber. Only through genuine rapport can a more transparent and respectful relationship with regulators be established, fostering an ecosystem that thrives on accountability and mutual understanding. Fintech, with its relentless pursuit of rapid scaling, must not see it as conflict with the regulators’ by-design obsession for financial stability and consumer protection.

Intelligence and funding prowess may dazzle the investor landscape, but within the regulatory framework, they hold little sway. A word to the wise for fintech founders: Regulatory approval is not a given, nor is it owed. If you can’t align with the sectoral regulators dedicated to upholding financial stability and safeguarding consumers, perhaps a reevaluation of your approach is in order.

While it’s essential to avoid generalisations about the entire fintech ecosystem, it is undeniable that the behaviour of even a few prominent entities significantly impacts the overall trust dynamic between the regulatory system and the industry. The notion that enterprise valuation alone determines an entity’s importance within the regulatory framework is flawed. Instead, fintechs must actively earn the trust of regulators through consistent business performance and meticulous adherence to regulatory expectations. Merely relying on financial stature without a demonstrated commitment to responsible practices risks creating a trust gap that reverberates across the entire industry.

It is urgent for fintech entities, irrespective of their size, to recognise that credibility with regulators is earned through actions, fostering a regulatory environment developed with mutual respect and shared objectives. By prioritising transparency and a willingness to learn, the sector can scale new heights without compromising its integrity. This cultural transformation sets the stage for a resilient and forward-thinking financial services ecosystem where innovation and compliance coexist harmoniously.

The writer is policy researcher and corporate advisor

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