Compliance for Fintech Companies 

Compliance for Fintech Companies

Compliance has been vital to running a successful fintech company as the fintech industry has continued to grow exponentially in the last couple of decades. By providing new and simple financial solutions, fintech firms have challenged the traditional financial services sector. However, with innovation comes regulation, and fintech companies must adhere to various rules to function inside the legal framework.

Compliance in fintech refers to following regulatory rules established by financial authorities to ensure that fintech enterprises operate legally. Compliance is not an option for fintech companies; failing to comply can have substantial legal and economic consequences. Compliance aids in the protection of consumers, the integrity of financial systems, and the promotion of fair competition in the sector.

Many regulatory standards apply to the fintech industry, including anti-money laundering (AML), know-your-customer (KYC), payment protocols, cybersecurity, etc. These restrictions are intended to prevent fraud, safeguard customer data, and guarantee that fintech companies behave responsibly. While we have covered the most widely known Payment Card Industry Data Security Standard (PCI DSS) before, we aim to introduce you to more security frameworks in the finance sector with this article.

In this blog, we will discuss the numerous compliance standards that fintech firms must follow all across the world, including the US, the UK, the EU, Australia, and other countries, the benefits these companies can avail by automating their compliance requirements, and the steps they can follow to get started on their compliance journeys. 

What is Fintech Compliance? 

Fintech compliance entails conforming to regulatory laws that govern new business models and financial technologies. These recommendations aim to protect the interests of consumers and investors’ capital. They are also essential if you intend to launch a finance organization.

The industry is rapidly evolving, creating several chances for entrepreneurs. Most fintech firms operate in a move-fast-break-fast mode, accepting failures as a necessary part of the innovation process. Compared to traditional banks, they rarely have robust fintech risk and compliance management programs.

As more fintech companies enter spaces previously occupied by traditional financial institutions, they attract the attention of both criminals and regulators. The major reasons for the new laws are to protect the industry from fraud and to alleviate fintech security worries.

Non-compliance with various rules and regulations results in non-compliance, which entails significant consequences for fintech companies:

  • Regulatory risks in the form of legal action pose a significant danger, particularly for fintech companies that collaborate with traditional banks.
  • Financial risks like a reduction in share prices as a result of regulatory action, an inability to attract money, a loss of user confidence, and a consequent drop in future profits, can have a significant impact on the company’s bottom line
  • Business risks  can prohibit a corporation from meeting its financial objectives. They are frequently the natural result of fintech’s fast-paced nature.
  • Reputational risks for breaching customer trust can result from a single incident, It might also have a cascading effect on other linked products and services.

Fintech regulations around the world

Let’s understand the regulatory frameworks that exist in different countries and jurisdictions.

The United States

The US houses three out of ten fintech companies in the world. Even then, a federal structure still needs to be established to oversee the fintech sector. Financial startups are governed by the rules of individual states, making it more difficult to obtain all of the essential permits to operate across the United States. Aside from local regulations, all fintech companies must be familiar with the federal legislation that oversees the financial industry:

  • The Bank Secrecy Act (BSA) oversees Anti-Money Laundering (AML) laws for fintech companies. These businesses must report various questionable activities, including acquiring negotiable instruments (cashier checks and money orders).
  • Fintech companies are required to adopt Know Your Customer (KYC) procedures under Section 326 of the USA Patriot Act. Title III requires fintech companies to implement AML protocols, hire compliance officers for ongoing worker training, and evaluate their KYC or AML programs through third-party audits.
  • The Anti-Money Laundering Act of 2020 (AMLA) updated the BSA to require fintech companies to implement risk-based programs to combat money laundering and terrorist funding, among other things.
  • The Fair Credit Reporting Act (FCRA) governs how financial institutions gather consumer credit information.
  • The Gramm-Leach-Bliley Act (GLBA) requires all fintech companies to explain how they exchange client data.
  • Initial Coin Offerings (ICOs) for American fintech companies are governed by the Securities Act of 1933. If an ICO fulfills the threshold requirements, a precedent known as the Howey Test determines its legal standing, subjecting it to the Exchange Act and the Securities Act.
  • Payments are governed by the Electronic Fund Transfer Act and CFPB Regulation E, which require fintech companies to rectify transfer problems within 45 days.
  • The Truth in Lending Act (TILA) outlines credit card holders’ obligations, including the right to defend and improve credit card disclosures, rate increases, payment allocations, and a reasonable payment time.
  • The Truth in Savings Act (TISA) includes finTech fees and interest transparency standards.
  • The Electronic Signatures in Global and National Commerce Act (E-Sign) governs electronic documents and signatures. The statute requires fintech companies to provide a paper copy option, disclosures of electronic records, and how future electronic contact will be made with the client.
  • Numerous regulators are in charge of overseeing payment-related fintech companies. Local governments, the National Automated Clearing House Association (NACHA), and the Department of Treasury’s projected fintech Council are among them.

Other consumer protection rules that fintech companies must follow include the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Home Mortgage Disclosure Act.

With so many laws pertaining to the financial sector, it is important to know about the governing bodies responsible for implementing and monitoring them. Here is a list of the most relevant governmental bodies that take care of fintech compliance in the United States:

  • Securities and Exchange Commission (SEC): Manages the American securities market – exchanges, investment advisors, mutual funds, brokers, and dealers.
  • Financial Industry Regulatory Authority (FINRA): Protects investors and is mandatory for investment and crowdfunding companies.
  • Federal Trade Commission (FTC): Oversees “anti-competitive, unfair, or deceptive” actions by B2C companies and takes on privacy and data protection responsibilities.
  • Federal Deposit Insurance Corporation (FDIC): Manages the American deposit insurance scheme and regulates banks, not subject to the Federal Reserve System.
  • Consumer Financial Protection Bureau (CFPB): Regulates B2C financial services and levies penalties against unfair practices.
  • Financial Crimes Enforcement Network (FinCEN): Directs Anti-Money Laundering (AML) laws and imposes their terms on financial companies.
  • Commodity Futures Trading Commission (CFTC): Regulates commodity exchange markets and oversees trading organizations.

The United Kingdom

The UK is one of the countries powering the growth of fintech worldwide, with over 1,800 businesses competing in the thriving sector. However, like the other countries on our list, the UK still needs a uniform legal framework for fintech companies. Depending on the size and nature of the business, multiple authorities oversee British enterprises.

In the United Kingdom, the key fintech compliance regulators are:

  • The Prudential Regulatory Authority (PRA); and,
  • The Financial Conduct Authority (FCA).

They oversee the operations of all lending institutions and businesses that accept online payments.

Electronic money, investments, deposits, lending, insurance, and payments require a license. Although crypto-trading platforms are not formally regulated, businesses in the field may wish to get licenses such as the E-Money license.

Other consumer protection rules that fintech companies must follow include the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Home Mortgage Disclosure Act.

The European Union

The EU is home to more than 2000 fintech firms. Although the pandemic reduced European fintech financing, several companies are growing steadily. As a result, EU regulators are focusing their efforts on modernizing the fintech regulatory environment.

The European Securities and Markets Authority (ESMA) is the lead regulator in initiatives to increase fintech investment.

Local regulators for domestic and foreign enterprises exist in certain European nations, such as the Autorité des marchés financiers, AMF, in France, and the Federal Financial Supervisory Authority, BaFin, in Germany..

The various cryptocurrency trading platforms, mobile wallet providers, and businesses that manage virtual currency exchange have been subjected to increased scrutiny since 2020. Trading platforms must now register with relevant authorities and conduct AML or KYC due diligence procedures.

European regulators intend to tighten financial technology legislation in all member countries by 2024. The plans include new frameworks for cryptocurrencies, Blockchain, digital IDs, and other technologies.


FinTech companies that provide financial services in Australia must have an Australian financial services license or obtain an explicit exemption from having one. The Corporation Act of Australia authorizes this.

This law protects your FinTech startup if you agree to:

  • Develop a financial product that provides financial guidance;
  • Make a template for marketing a financial product available; and,
  • Run registered schemes and offer custody or depository services.

Here is a list of Australian regulatory bodies that you must be aware of:

  • The Australian Transactions Reports and Analysis Center (AUSTRAC): Regulate fintech laws in Australia in general, including transactions conducted on the internet. It does this by ensuring that exchange platforms report transaction participants’ identities.
  • The Australian Securities and Investments Commission: Protects both investors and customers by offering regulatory advice for fintech companies setting up in Australia.
  • The Australian Prudential Regulation Authority: Manages fintech compliance requirements for banking and insurance activities.

Other Countries

  1. Switzerland’s fintech sector receives full government support. The Swiss Financial Market Supervisory Authority (FINMA) is the country’s major regulator. During the COVID-19 outbreak, the government announced a new license for fintech startups that is less stringent than those for established businesses.
  2. China has a big FinTech market. Although the government and the People’s Bank of China actively monitor the sector, China has no uniform FinTech regulatory framework. 

5 Benefits of automation

Compliance issues in the fintech sector may sneak up on even the most inventive tech companies, and security and privacy concerns are at an all-time high. Compliance methods must evolve to address the challenge adequately, and automation can play an important role in cost savings and resources and keeping continuous compliance.

Here are five benefits of automating compliance for the fintech industry:

  1. Ensure Proper Administration

Compliance automation organizes a company’s policies, procedures, and evidence collection for audits. Since compliance officers have numerous tasks, they may inadvertently miss or misreport information. Automated compliance solutions relieve compliance officers of this burden, allowing them to focus on other matters.

  1. Prevent Human Errors

When a fintech company moves towards automated compliance, it eliminates the chance of human error, making your operations far more accurate and removing management’s fault. Automation minimizes work-related anxiety by removing a human compliance reporter’s fear or concern over an unintentional misreporting occurrence. 

  1. Save Time, Money, and Other Resources

Automation will save executives time, money, and relationships by consistently and automatically satisfying the most recent regulations. Running an automated program saves far more time than relying on human staff to carry out every procedure correctly. Noncompliance might result in fines and negative public relations. Although automation does not eliminate the need for compliance officers, it does save expenses because running an automated compliance program is less expensive than paying many workers to oversee each operation manually. 

  1. Generate Better Data Through Accurate Reporting

Most automated compliance programs are far better than humans at digesting large amounts of data in a short period. Since automation accelerates repetitive tasks, it better understands how a compliance program operates. This gives your compliance officer more in-depth information on improving your company’s ethics and performance. The burden of doing routine activities is passed to the program, and your compliance officer may function more as an advisor in finding solutions and addressing issues.

  1. Continuous Monitoring

When your compliance standards are manually reviewed, a human employee must enter the data and run the program X times each week, month, or year, depending on how frequently you conduct internal audits. This allows for many errors to be discovered. An automated system does not need to take a break, and it can continuously check your compliance data, alerting you quickly if something is out of place.  

5 Steps to follow

As a fintech startup, follow these steps to become compliant:

  1. Seek legal counsel

Since compliance is a complicated and costly issue, getting legal counsel before making any major decisions is vital. Please make an appointment with a professional lawyer to learn about the regulatory FinTech requirements your firm will encounter and how to meet them.

  1. Acquire requisite licenses for services you offer

There are many routes to fintech compliance. Until governments create a single legislative framework, financial firms must take a case-by-case approach to acquire licenses:

  • Money Transmitter Licences (MTLs) are required for any US corporation that sells or issues payment instruments, stores value, or receives money for transmission. The process and restrictions differ by state and might take a long time and money.
  • Money service business (MSB) registrations are often necessary for e-wallets, peer-to-peer transfers, and mobile payment platforms. These businesses must register with the Treasury Department, adopt an AML program, and prepare Currency Transaction and Suspicious Activity Reports.
  • BitLicense is required for virtual and cryptocurrencies. It is issued by the New York State Department of Financial Services (NYSDFS) to businesses that work with residents of New York State.
  1. Invest in a scalable compliance initiative

Fast-growing fintech startups must guarantee that their compliance programs keep up with increased transaction volumes. KYC procedures are critical since your client base may rapidly expand to incorporate new types of users with varied needs. The increased transaction volume necessitates adjustments in reporting and dispute resolution.

KYC measures should be followed for all transactions, regardless of size, to prevent funds from being used for unlawful or terrorist operations. Avoiding this responsibility will almost certainly result in swift regulatory action. Employing a dedicated compliance officer is also another important practice to implement from the start.

Remember that compliance is a constant process; ensure you have enough resources to handle it.

  1. Enforce anti-money laundering measures

You must put AML programs in place before providing financial services. Since fintech companies tend to start small and evolve quickly, they may leave a gap for unmonitored transactions, making them vulnerable to regulatory sanctions.

P2P lending platforms, in particular, should take precautions to protect their services from illicit activities. Implementing AML protocols is critical to protecting your company’s reputation.

  1. Look for RegTech partnerships

One of the major fintech themes that will affect the industry is regulatory technology (RegTech). The Software-as-a-Service  (SaaS) approach is applied to fintech compliance practices in this market. RegTech firms offer advice and guidance services in the following fintech risk areas:

  • Online compliance regulation libraries
  • Planning compliance operations, gathering resources, and responding to new requirements
  • Monitoring and auditing transactions for suspicious behavior
  • Risk assessment and reporting for determining risk exposures and asset characteristics
  • Online due diligence and data security to prevent data breaches.
  • Customer ID management through KYC
  • AML checkpoints for high-value and politically exposed clients.

RegTech firms can be excellent partners for early-stage fintech startups navigating the difficult regulatory landscape. However, as your company matures, having all the necessary compliance tools and expertise within your organization becomes critical. 

Fintech Compliance with Akitra!

Establishing trust is a crucial competitive differentiator when courting new SaaS businesses in today’s era of data breaches and compromised privacy. Customers and partners want assurances that their organizations are doing everything possible to prevent disclosing sensitive data and putting them at risk, and compliance certification fills that need.

Akitra offers an industry-leading, AI-powered Compliance Automation platform for SaaS companies. Using automated evidence collection and continuous monitoring, together with a full suite of customizable policies and controls as a compliance foundation, our service helps fintech companies prepare readiness for PCI DSS compliance standard, one of the most popular regulatory frameworks in the finance sector, and GLBA framework, along with other frameworks like SOC 1, SOC 2, ISO 27001, ISO 27701, ISO 27017, ISO 27018, HIPAA, GDPR, CMMC, NIST 800-53, NIST 800-171, FedRAMP, and more such as CIS AWS Foundations Benchmark, etc. In addition, companies can use Akitra’s automated questionnaire product to streamline and expedite security questionnaire response processes delivering huge cost savings. Our compliance and security experts will provide customized guidance to navigate the end-to-end compliance process confidently. 

The benefits of our solution include enormous savings in time, human resources, and cost savings, including discounted audit fees with our audit firm partners. Customers achieve compliance certification fast and cost-effectively, stay continuously compliant as they grow, and can become certified under additional frameworks using a single compliance automation platform.

Build customer trust. Choose Akitra TODAY!‍

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