Are you building a fintech that is subject to regulatory compliance?
Are you in charge of handling regulatory compliance? Are you unsure how to navigate through the ever-changing fintech regulatory landscape?
If any of your answers are yes, you’re in the right place because this article provides critical fintech compliance essentials, such as:
- What is Fintech Compliance?
- How to Manage Fintech Regulation as a Startup
- Overview of Fintech Regulations and Regulators
- Regulatory Updates
- Startup Fintech Compliance Issues and Challenges
- Hire a Chief Compliance Officer
- Outsourced Compliance
- Fintech and Data Protection
- Fintech AML Compliance
- Fintech Cybersecurity Regulatory Compliance
- RegTech: How RegTech benefits fintech startups
- Compliance Audits, Exams, and Assessments
- Risk Management Practices
- Compliance Training Programs
- Fintech Compliance Checklist
- How Will Fintech Be Regulated in the Future?
- Fintech Consulting Services by InnReg
- Fintech Compliance in Action
This article explores key fintech regulations set forth by regulatory bodies in the United States (US), the European Union (EU) and the United Kingdom (UK).
Subject-matter experts with decades of experience developed this Guide, not freelance copywriters, third-party agencies, content managers, or AI-based tools.
We are global regulatory compliance experts.
See below for an overview, key takeaways, and links to in-depth articles on each topic.
What is Fintech Compliance?
Fintech compliance refers to the obligation of financial service institutions to adhere to applicable regulations on data privacy, consumer security, and the use of financial technology.
A commitment to compliance helps build a positive reputation, attract customers, and establish long-term relationships. Alternatively, non-compliance may lead to significant fines, legal proceedings, or even the potential suspension of operations.
As fintech companies leverage technology to provide innovative financial services, they must navigate a complex regulatory landscape to ensure their operations are compliant, secure, and in line with financial services industry standards.
As the depth and breadth of regulations deepen and grow, fintech compliance is a continuous process developed around the following core areas:
- Licensing and Registration
- Anti-Money Laundering (AML) and Know Your Customer (KYC) Policies
- Data Privacy and Security
- Consumer Protection
While requirements vary based on the jurisdiction and the nature of the fintech's operations, the above-listed areas are the four main components of fintech compliance globally.
|Key Takeaway: Fintech compliance is an ongoing process, and your fintech needs to stay informed about changes in regulations and adapt its practices accordingly.
Are you interested in gaining a deeper knowledge of fintech compliance? Dive into detailed insights in our Practical Fintech Compliance Checklist for Your Robust Compliance Program in 2024.
For further information on fintech compliance, you can also browse these popular articles drafted by our in-house experts:
- Get Payment and E-Money Institution Licenses (PI and EMI Licenses) in Europe
- New EU Crypto Regulations: Crypto Licensing and Transfer of Funds
- AI Compliance: A Must-Read for Fintechs Using AI
- How to Hire a Chief Compliance Officer for Your Fintech
- Southeast Asia Fintech Ecosystem
How to Manage Fintech Regulations as a Startup
Navigating fintech compliance as a startup can be complex, but it's crucial for ensuring compliance, building trust, and fostering long-term success.
Here are some steps to help your fintech startup effectively deal with regulations:
- Understand the Regulatory Landscape
- Engage with Regulatory Authorities
- Implement Robust Compliance Processes
- Utilize Regulatory Sandboxes
- Prioritize Data Protection and Security
- Stay Informed and Adaptive
- Stay Up-to-date with New Regulatory Developments
- Educate Stakeholders
- Collaborate with Industry Peers
|Key Takeaway: Successfully navigating fintech compliance regulations requires a proactive and informed approach.
For deeper insights, check out our detailed Practical Fintech Compliance Checklist.
Overview of Fintech Regulations
Fintech regulations vary globally from jurisdiction to jurisdiction and from product to product. However, they are all designed to safeguard consumers and establish clear requirements for the regulation and supervision of fintech firms.
Currently, fintechs are facing heightened regulatory scrutiny. We see an increasing number of new complex laws and regulations globally. These new laws and regulations often introduce stricter requirements and impose tight deadlines.
Many fintechs, especially those in the early stages of development, lack the resources to implement these new compliance requirements promptly and efficiently. As a result, we see a tremendous number of them incurring heavy fines that could have been avoided had they put more focus and competent resources into this area.
|Key Takeaway: Focusing on compliance with fintech regulations must be your core priority—the same level as product development—especially in the early stages of your startup.
To help you stay current with regulatory compliance, we’ve outlined key regulations for the top three global fintech markets: the US, the EU, and the UK.
Fintech Regulations in the US
The US is home to the largest fintech ecosystem and one of the most substantial bodies of laws and regulations for fintech startups.
Let’s take a look at the main US fintech regulations.
|Fintech Regulations in the US
|Bank Secrecy Act Requires financial institutions to assist in identifying and preventing money laundering in collaboration with US government agencies.
|AML Act Mandates the Treasury Department to establish policies and regulations to protect against money laundering and terrorist financing. Additionally, it obliges organizations to formulate and adhere to risk-based Anti-Money Laundering (AML) programs.
|PATRIOT Act One of the primary purposes of the Act is to strengthen US measures to prevent, detect, and prosecute international money laundering and financing of terrorism.
|Gramm-Leach-Bliley Act (GLBA) Seeks to ensure financial organizations maintain personal data confidentiality, provide customers privacy policies, and allow opt-outs for personal data disclosure.
|Fair Credit Reporting Act (FCRA) Guarantees the accuracy, fairness, and privacy of consumer information.
We note that this list is not exhaustive. For further insight on US regulations impacting fintechs, see the following article written by our in-house experts: Fintech Startup Regulations: Fintech Compliance.
Fintech Regulations in the EU
The regulation of fintech in the EU involves a combination of overarching EU-level regulations and directives, as well as national regulations implemented by individual member states.
Let’s take a look at some of the main regulations.
|Fintech Regulations in the EU
AML Directives (AMLDs) Periodically updated, the EU AML directives seek to prevent money laundering and terrorist financing. Each EU member state is required to implement them into its legal system.
The latest AMLD is the Sixth AML Directive, which introduced stringent requirements for financial institutions by extending the liability to include legal persons and individuals.
|Revised Payment Services Directive (PSD2) Governs consumer and business payments in the EU.
|Markets in Financial Instruments Directive (MiFID II) Provides a legal framework for securities markets and investment intermediaries.
|Markets in Crypto-Assets Regulation (MiCA) Intended to help streamline distributed ledger technology and virtual asset regulation in the European Union while protecting users and investors.
|EU Transfer of Funds Regulation (EU Travel Rule) Requires financial service providers to collect and share information about their customers to prevent using crypto services for illicit purposes.
|General Data Protection Regulation (GDPR) The strictest Data Privacy regulation worldwide that sets out rules for data protection, storage, transfer, and use of personal data.
|E-Privacy Directive Requires security measures to protect personal data.
This is not an exhaustive list. For further insight on EU regulations, see the following article written by our in-house experts:
- Get Payment and E-Money Institution Licenses (PI and EMI Licenses) in Europe (October 2023)
- New EU Crypto Regulations: Crypto Licensing and Transfer of Funds (2023 Update)
Furthermore, each EU member state may have additional regulations and licensing requirements for fintech activities.
Fintech Regulations in the UK
London has rapidly emerged as one of the primary hubs for fintech investments. In 2022, the UK capital surpassed both San Francisco and New York, securing its position as one of the world's leading centers for fintech investment.
If you envisage expanding your services to the UK, consider these key regulations:
|Fintech Regulations in the UK
|Payment Services Regulations (PSRs) Similar to the PSD II in the EU, the PSRs govern consumer and business payments in the UK.
|Money Laundering and Terrorist Financing (Amendment) Regulations 2019 Sets out the amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). An outline of the main amendments by the UK financial regulator is here.
|Financial Services and Markets Act 2000 Designed to enhance the oversight of the financial services industry.
|Data Protection Act 2018 The UK’s implementation of the General Data Protection Regulation (GDPR).
|Financial promotion rules for crypto assets Establishes greater consumer protection by requiring crypto-asset firms to have “clear, fair, and not misleading” marketing practices.
|Future financial services regulatory regime for crypto assets The British government will introduce laws regulating the crypto industry before Parliament by 2024.
We will explore them in the next section.
Overview of Fintech Regulators
The fintech regulatory landscapes of the US, the EU, and the UK feature the most complex and stringent regulations globally. Therefore, it is not surprising that these jurisdictions also have the most active and strict regulators.
Regulators heavily influence the direction and dynamics of the industry in their respective regions and globally.
Who Regulates Fintech in the US?
The many fintech regulations in the US are implemented and enforced by an extensive network of US federal and state regulatory bodies, each with a distinct (yet often overlapping) scope of authority.
|Fintech Regulators in the US
|Financial Crimes Enforcement Network (FinCEN) FinCEN is responsible for collating transaction information to uncover and prevent financial crimes.
|Office of the Comptroller of the Currency (OCC) Oversees businesses to ensure they are compliant with relevant banking regulations and laws.
|Consumer Financial Protection Bureau (CFPB) The CFPB is responsible for the fair treatment of consumers by banks, lenders, and other financial institutions.
|Securities Exchange Commission (SEC) Provides overarching regulatory oversight of all companies that engage in the sale of securities and provides guidance on reporting and disciplinary requirements.
|Commodity Futures Trading Commission (CFTC) Regulates the US derivatives markets, which include futures, swaps, and certain kinds of options.
|Federal Trade Commission (FTC) The FTC promotes competition and protects consumers from unfair or deceptive acts and practices in the marketplace.
|Office of Foreign Assets Control (OFAC) Administers the US sanctions programs.
|Financial Industry Regulatory Authority (FINRA) Regulates member brokerage firms and exchange markets.
|State regulators In the US, each state typically has its own financial regulator responsible for overseeing and regulating financial institutions and activities within its jurisdiction. For instance, the New York Department for Financial Services (NYDFS) and the California Department of Financial Protection and Innovation (DFPI) are two of the most active state regulators.
Because no single fintech compliance regulatory body is yet in place in the US, new fintechs should register with multiple regulatory authorities at both the Federal and State levels based on their unique business and strategic needs.
Who Regulates Fintech in the EU?
Several regulatory bodies play significant roles in overseeing fintech compliance & activities within the EU.
We outlined the key regulators in the table below.
|Fintech Regulators in the EU
|European Banking Authority (EBA) Headquartered in Paris, this independent regulatory body is responsible for prudential regulation and supervision across the European banking sector. The EBA’s work on fintech and financial innovation has evolved over recent years with the establishment of the EBA’s FinTech Knowledge Hub.
|European Central Bank (ECB) Headquartered in Frankfurt, the ECB oversees the stability of the financial system within the eurozone. While not a direct fintech regulator, its policies can influence the operating environment.
|European Securities and Markets Authority (ESMA) Headquartered in Paris, ESMA is the EU financial market watchdog that focuses on strengthening supervision, enhancing the protection of retail investors, and fostering effective markets and financial stability.
|Anti-Money Laundering Authority (AMLA) The EU is currently in the process of creating a new EU decentralized agency, the Anti-Money Laundering/Countering the Financing of Terrorism Authority (AMLA), which will focus on a single integrated system of AML/CFT supervision across the EU.
|European Data Protection Board (EDPB) Headquartered in Brussels, the EDPB is an independent body that ensures consistent application of the GDPR and promotes cooperation among the EU’s national data protection authorities.
|National Regulatory Authorities Each EU member state has its national regulatory authority responsible for overseeing financial activities, including those related to fintech. Examples include the DNB in the Netherlands, BaFin in Germany, and ACPR in France.
Who Regulates Fintech in the UK?
The regulatory environment for fintechs in the UK is often considered supportive and conducive to innovation.
Below is an overview of the main regulatory bodies in the UK.
|Fintech Regulators in the UK
|Financial Conduct Authority (FCA) As the UK's primary financial regulatory authority, the FCA oversees financial services firms and financial markets.
|Prudential Regulation Authority (PRA) The PRA, a part of the Bank of England, focuses on the prudential regulation and supervision of banks, insurers, and major investment firms. While not specific to fintech, its oversight includes certain financial institutions operating in the sector.
|Bank of England (BoE) The BoE, as the UK's central bank, contributes to maintaining financial stability and overseeing the overall financial system. It plays a significant role in shaping policies that impact fintech.
|Payment Systems Regulator (PSR) The PSR oversees payment systems in the UK, promoting competition and innovation. It regulates aspects of the payments sector, including firms involved in payment services.
|Information Commissioner's Office (ICO) The ICO is the UK's independent regulator for data protection.
Regulatory updates in fintech compliance refer to changes, amendments, or additions to the applicable regulatory framework. These updates can come from various regulatory bodies and authorities at national or international levels. Staying informed about regulatory updates is crucial for fintech companies to ensure compliance with the latest rules and regulations.
The regulators mentioned above frequently revise and update their regulatory frameworks, especially regarding new and quickly developing innovation areas of fintech. Often, these updates require significant revision to a fintech’s compliance program.
Therefore, ensuring robust regulatory compliance requires an expert to track and interpret regulatory changes and update your program accordingly. This effort may involve engaging with legal and compliance experts, participating in industry forums, and maintaining open lines of communication with relevant regulatory authorities.
The benefit of proactive engagement with regulatory changes is the timely adoption of your operations, policies, and practices to remain compliant and foster a culture of regulatory awareness.
|Key Takeaway: Establish a robust regulatory monitoring and compliance program to effectively track and respond to regulatory updates.
Startup Fintech Compliance Issues and Challenges
Fintech startups face several compliance issues and challenges globally. These challenges arise due to the complex regulatory environment, evolving technologies, and the precarious balance of innovation with regulatory requirements.
Here are some top challenges for startups:
|Covering the high costs of maintaining compliance
|Maintaining compliance is costly, and, therefore, a critical consideration for fintechs as they navigate the dynamic regulatory requirements of the financial services industry. Innovating while achieving sustained compliance requires ongoing investments in technology, legal and compliance expertise, and operational efficiency.
|Fintech startups often operate in a highly regulated environment; compliance with licensing requirements is crucial for your legal operations.
|Regulatory Uncertainty and Changes
|Your fintech may face uncertainty regarding regulatory requirements as regulations can change rapidly.
Staying updated on regulatory changes and adapting compliance practices accordingly is an ongoing challenge.
|Operating across borders introduces additional complexities due to varying regulatory requirements in different jurisdictions.
Fintech startups must navigate these differences and comply with both domestic and international regulations.
|Fintech startups are required to submit accurate and timely regulatory reports.
Implementing systems for efficient reporting and ensuring compliance with reporting obligations can be challenging, especially as the business scales.
|Third-Party Vendor Risk Management
|Fintechs often rely on third-party vendors for various services.
Managing the compliance of these vendors and ensuring they adhere to regulatory standards is crucial to preventing regulatory risks.
|To comply with consumer protection laws, transparency, fair treatment, and effective complaint resolution are essential.
|Data security is a paramount challenge for fintechs due to the highly sensitive nature of the financial information they handle.
To safeguard customer trust and regulatory compliance, companies must implement robust measures to protect against cyber threats, fraud, and unauthorized access.
|Fraud prevention poses a challenge for fintechs due to the evolving tactics of sophisticated cybercriminals, the high volume of financial transactions, and balancing stringent security measures with user-friendly experiences.
|Key Takeaway: Regular assessments and adjustments to compliance practices are essential as regulations evolve.
Launching a startup? InnReg is uniquely positioned to help you with registrations, licensing, and compliance: Fintech Compliance Developed for Technology Innovators.
Hire a Chief Compliance Officer
Hiring a Chief Compliance Officer (CCO) is essential for fintech startups due to the highly regulated nature of the financial services industry. If your fintech has encountered regulatory scrutiny or compliance difficulties, onboarding a CCO is critical to becoming and remaining compliant.
The CCO is one of the most important stakeholders of your fintech. Therefore, you should carefully define your needs and expectations before you start the hiring process.
To help you hire the right CCO, see InnReg’s popular guide on How to Hire a Chief Compliance Officer for Your Fintech.
Outsourced compliance for a fintech involves contracting with external experts or service providers like InnReg to manage specific functions or responsibilities on behalf of your fintech. This outsourcing arrangement allows you to leverage regulatory compliance expertise in lieu of an in-house compliance team to address every aspect of your operations.
InnReg has been an outsourced CCO service provider since 2013, and as such, has witnessed many strategic benefits that outsourced compliance provides to fintechs.
Our experts have compiled a guide to share our practical knowledge on outsourced compliance - Outsourcing is a Cost-Effective Way to Meet CCO Staffing Requirements.
|Key Takeaway: It's essential to carefully select an outsourced compliance partner that aligns with your specific needs, industry niche, and industry requirements.
Fintech and Data Protection
Data protection is crucial for fintech compliance due to the sensitive nature of the financial information they handle.
Several factors underscore the importance of safeguarding data in the fintech industry:
|Customer Trust and Reputation
|Maintaining the privacy and security of customer data is essential for building and preserving trust with your customers.
A data breach can lead to reputational damage and loss of customer confidence.
|Fintechs are subject to various data protection regulations, including the GDPR in the EU, the California Consumer Privacy Act (CCPA) in the U.S., and similar laws in different jurisdictions.
Compliance with these regulations is not only a legal obligation but also critical for avoiding significant fines and penalties.
|Cross-Border Data Flows
|Many fintechs operate globally, necessitating compliance with data protection laws spanning different jurisdictions.
Ensuring data privacy and protection is crucial for cross-border data flows and adhering to diverse regulatory frameworks.
|Data breaches and privacy incidents can result in severe consequences for your business continuity.
Fintech companies prioritizing data protection are better positioned to maintain trust, avoid disruptions, and continue their operations seamlessly.
|Key Takeaway: Data protection is integral to the overall success and sustainability of your fintech.
For detailed insights on Data Protection Compliance, see our Data Protection Compliance Checklist.
Fintech AML Compliance
Creating a successful AML compliance program for a fintech involves a comprehensive approach that addresses various key elements.
Below are some practical tips to help you build a successful AML compliance framework for your fintech:
|Conduct a thorough risk assessment to identify and understand the specific money laundering and terrorist financing risks associated with your fintech business. This assessment helps tailor AML measures to the level of risk involved.
|AML Policy and Procedures
Develop and implement clear and comprehensive AML policies and procedures.
|Customer Due Diligence (CDD) and Know Your Customer (KYC)
|Implement robust CDD and KYC procedures to verify the identity of customers and understand the nature and purpose of their transactions. These procedures involve collecting sufficient customer information and monitoring their transactions for unusual activities.
|Utilize advanced transaction monitoring systems to detect and analyze transaction patterns that may indicate money laundering or suspicious activities. Automated systems can help in real-time monitoring and analysis of large datasets.
|Employee Training and Awareness
|Train employees regularly on AML regulations, company policies, and procedures. Enhancing employee awareness is crucial for effectively implementing AML measures throughout the organization.
|Continuous Monitoring and Updating
|AML compliance is an ongoing process that requires continuous monitoring of regulatory changes, emerging risks, and the evolving nature of financial crimes. Regularly update your AML program to address new challenges.
|Key Takeaway: By incorporating these key elements into your AML program, your fintech company can establish a robust framework to mitigate the risks associated with money laundering and terrorist financing while maintaining regulatory compliance.
Fintech Cybersecurity Regulatory Compliance
Cybersecurity regulatory compliance is critical for fintechs to protect consumer data and the overall integrity of the financial industry.
We often see fintechs failing to establish basic cybersecurity controls. To help you avoid such failures, potential fines, and damaged reputation, we’ve listed practical tips to help you establish an effective cybersecurity compliance program:
|Implement Access Controls
|Implement strong access controls to ensure that only authorized individuals can access sensitive data and systems. Such controls include multi-factor authentication, role-based access, and regular access reviews
|Encryption and Data Protection
|Utilize encryption for sensitive data both in transit and at rest. Implement data protection measures to safeguard customer information and ensure compliance with data protection regulations.
|Incident Response Plan
|Develop and regularly test your incident response plan to effectively respond to and recover from cybersecurity incidents. Ensure the plan includes communication protocols, reporting mechanisms, and coordination with regulatory authorities.
|Training and Awareness
|Provide cybersecurity training and awareness programs for employees. Ensure that staff members are knowledgeable about security best practices, social engineering threats, and their role in maintaining cybersecurity.
|Regular Audits and Assessments
|Conduct regular internal and external cybersecurity audits and assessments to evaluate the effectiveness of controls and identify areas for improvement. Engage third-party experts if needed.
|Key Takeaway: Remember that cybersecurity compliance is an ongoing process that requires adaptability to changing threats and regulations. Regularly reassess and update your program to ensure its effectiveness and alignment with the evolving cybersecurity landscape.
If you are interested in mobile app cybersecurity, check out this article: Mobile App Regulations: Cybersecurity.
RegTech: How Does RegTech Benefit Fintech Startups?
RegTech, short for Regulatory Technology, refers to using technology to help companies comply with regulations efficiently and at a lower cost.
For fintech startups, RegTech offers several benefits that can enhance fintech compliance, streamline operations, and contribute to overall business success. Here are some examples derived from our consultancy practice on how RegTech can benefit fintech startups:
|RegTech solutions automate and streamline compliance processes, reducing the need for manual and resource-intensive tasks. Fintechs experience cost savings in terms of manpower and operational expenses.
|Automation of Compliance Processes
|RegTech automates regulatory compliance processes, such as data collection, reporting, and monitoring. Automated processes reduce the likelihood of errors and consistently and accurately execute compliance activities.
|Adaptability to Regulatory Changes
|Regulatory requirements are subject to change. RegTech platforms are designed to adapt quickly to new regulations, ensuring that fintech startups comply with evolving legal frameworks.
|Fintech startups that leverage RegTech effectively can gain a competitive edge by demonstrating efficient processes, reduced operational costs, and a commitment to data security and regulatory adherence.
|Key Takeaway: RegTech empowers fintech startups to navigate complex regulatory landscapes with efficiency, accuracy, and cost-effectiveness. By adopting these technologies, startups can position themselves for growth, build customer trust, and remain agile in the face of changing regulatory requirements.
To gain further insight on using RegTech, see the following article written by our fintech compliance experts: RegTech for Your Fintech? Read This Before You Sign Up.
Compliance Audits, Exams, and Assessments
A critical part of your fintech compliance is managing compliance audits, exams, and assessments. Done properly these functions can help you maintain a strong compliance program and the trust of key stakeholders.
However, regulatory exam management can present significant challenges for fintechs, including keeping pace with changing regulations, managing data and documentation, and allocating sufficient resources for exam preparation.
InnReg experts have prepared the following practical guide brimming with valuable insights on how to manage regulatory exam inquiries: How to Handle a Regulatory Exam Inquiry.
Risk Management Practices
You must implement effective risk management practices to ensure your fintech doesn’t suffer a data breach and remains compliant. Ensuring those practices are ongoing is critical to your fintech's long-term sustainability. Here are some of the best risk management practices to consider:
|Develop a Risk Management Framework
|Establish a formal risk management framework outlining processes, methodologies, and responsibilities. Align this framework with the organization's overall strategy and regulatory requirements.
|Risk Appetite and Tolerance
|Define and communicate the organization's risk appetite and tolerance levels. Provide clear guidance on the acceptable level of risk exposure to help decision-makers understand the boundaries within which the company is comfortable operating.
|Assess the need for insurance coverage to mitigate certain risks. Coverage may include cybersecurity insurance, professional liability insurance, and other forms to protect against financial losses.
|Regular Stress Testing
|Conduct regular stress testing of critical systems and processes to identify vulnerabilities and weaknesses. This proactive approach helps the company prepare for adverse scenarios and strengthens its resilience.
|Establish a risk committee at the board level to provide oversight and guidance on risk management strategies. Board members should actively engage with risk reports and contribute to developing risk mitigation strategies.
|Key Takeaway: By adopting a comprehensive and proactive approach to risk management, you can remain agile in today’s fluid financial sector while safeguarding your fintech’s reputation, financial stability, and the interests of your stakeholders.
Compliance Training Programs
Another critical component of fintech compliance is compliance training. Implementing a robust compliance training program is essential for fostering a culture of regulatory awareness and responsibility within your organization.
The training needs for a fintech depend on factors such as the nature of its operations, the jurisdictions it operates in, and the specific applicable regulations. However, several core compliance trainings are important for fintechs to implement in their programs:
|AML training is crucial for fintech employees involved in customer onboarding, transactions, and compliance roles. It covers identifying and reporting suspicious activities, customer due diligence, and adherence to AML regulations.
|KYC training focuses on the procedures for verifying and identifying customers. It is essential for employees responsible for customer onboarding and includes understanding the importance of collecting and maintaining accurate customer information.
|Data Protection and Privacy Training
|Given the sensitivity of financial and personal data in fintech, fintechs should train employees on data protection and privacy regulations, such as GDPR. This training covers the principles of data protection, secure data handling, and individuals' rights regarding their data.
|Cybersecurity Awareness Training
|Cybersecurity training is essential for all employees to understand the risks associated with cyber threats. It covers phishing, password security, secure communication, incident response, and more.
|Vendor Management and Third-Party Risk Training
|Fintechs often rely on third-party vendors. Training on vendor management and third-party risk helps employees assess and manage the risks associated with external partners while ensuring compliance.
|Key Takeaway: Tailoring these training programs to your fintech's specific needs and operations is essential. Continuous monitoring and periodic updates to training programs are also critical to address evolving regulatory requirements and industry best practices.
To read more on compliance training and awareness, see Section 2.2 of our Practical Fintech Compliance Checklist.
Fintech Compliance Checklist
As regulatory scrutiny is rising globally, our industry experts have prepared a Practical Fintech Compliance Checklist to provide you with a comprehensive, actionable framework to become and stay compliant with regulations.
To gain further knowledge and valuable insights on the topics discussed so far, take a deep dive into our Fintech Compliance Checklist.
How Will Fintech be Regulated in the Future?
Predicting the exact future of fintech compliance and regulations is challenging, but several trends and considerations provide insights into how the regulations may evolve. The fintech regulatory landscape is likely to be shaped by a combination of technological advancements, market developments, and ongoing efforts to balance innovation with consumer protection.
From what we see in our daily practice, we've listed how evolving fintech regulations might impact the following areas in the near future:
|As we enter 2024, embedded finance - incorporating financial services into non-financial companies’ existing platforms - is expected to register explosive growth.
|AI-Driven Personalized Financial Services
|In recent years, artificial intelligence (AI) has become sophisticated enough to significantly impact real-world products and services. It is also becoming more integrated with the end-user experience. As fintechs leverage AI to deliver new products and services as key differentiators, they will incorporate AI capabilities into digital products to generate incremental revenue.
|Central Bank Digital Currencies (CBDCs) Momentum
|The continued exploration and potential launch of CBDCs by nations such as China, Sweden, South Korea, the US, and the European Union are poised to transform digital currencies. These government-backed digital currencies aim to lower transaction costs, boost financial inclusion, and shape cross-border payments.
|Open Banking Expansion
|In 2024, we believe a disruptor – driven by digital transformation and collaboration within fintech software development firms – will be integrating open banking application programming interfaces (APIs) to share financial data and services with third parties that help the bank’s customers.
|Decentralized Finance (DeFi) Goes Mainstream
|Another prominent fintech trend is the expansion of DeFi platforms, which empower individuals to access financial services directly, eliminating traditional intermediaries. We believe DeFi's will offer more sophisticated and secure decentralized applications focusing on scalability and regulatory compliance.
|Mobile Payments Adoption
|In 2024, the growth of digital payments that make transactions frictionless will likely continue. Mobile payments are set to explode in 2024, driven by the increasing value of digital wallet transactions.
|Key Takeaway: Stay informed about evolving regulations and proactively engage with regulators to develop effective and innovation-friendly regulatory frameworks.
To read our detailed analysis of fintech regulations in 2024: Fintech in 2024: A Look Ahead at the Top Fintech Trends.
Fintech Consulting Services by InnReg
Throughout its more than 10 years of experience, InnReg team has successfully supported clients from various financial sectors, such as:
- Alternative lenders, including crypto lenders
- Crypto companies
- Robo advisors
- Blockchain and NFT Marketplaces
- Registered Investment Advisors
- Money transmitters
Fintech Compliance in Action
The case studies below illustrate how InnReg has successfully supported fintech clients with the practical implementation and execution of regulatory requirements within the fintech industry.
1. Fintech Licensing and Compliance Program Launch
A leading global digital gaming company with attractive offerings such as downloads, sports memorabilia, and NFTs pursued a business expansion strategy in the US. They understood the difficulty of this process and approached InnReg for help in managing the compliance requirements involved with obtaining state licenses and federal registrations for money transmission activities.
As a non-US-based company, the client required guidance in successfully navigating the rules and requirements of both state and federal regulators. Furthermore, they needed a multi-pronged, multi-jurisdictional approach requiring diligent program management, governance support, and in-depth experience with the nuances of money transmitter regulations as they apply to blockchain platforms—a need that InnReg was well-positioned to address.
InnReg provided project management and compliance expertise to fulfill the client’s regulatory and licensing requirements to engage in money transmission payment activities across all relevant U.S. jurisdictions.
2. Fintech CCO Outsourcing
A fast-growing startup broker-dealer was expanding its client base and investing in the next growth phase. Unfortunately, they had a critical gap in their senior leadership structure – the Chief Compliance Officer (CCO). The absence of a CCO threatened the firm's regulatory integrity and operational effectiveness, which increased regulatory risks and could hinder growth.
InnReg’s team of outsourced compliance experts stepped in to tackle these challenges as a team:
- Interim CCO Support: We immediately filled the leadership void with one of our seasoned compliance professionals assuming the role of interim CCO. Leveraging their extensive industry experience, they guided the broker-dealer through complex regulatory landscapes, ensuring full compliance with financial regulations.
- Compliance Workflow Setup: We then focused on creating and implementing effective workflows. Our team performed a comprehensive analysis of the broker-dealer's operations and crafted tailored workflows to ensure regulatory compliance, efficient processing, and risk management.
- New CCO Onboarding Support: Finally, as the broker-dealer hired a permanent CCO, we facilitated the transition. Our team worked closely with the new hire, providing comprehensive training on the established compliance workflows and offering insight into the changing regulatory requirements of broker-dealers.
3. Seamless Implementation of a Compliance Program for an SEC-Regulated Company
A prominent early-stage company offering an online marketplace that leverages advanced technology solutions to allow individual investors to identify sources of investment advice quickly and seamlessly. Their platform enables users to filter financial advisors by customizable criteria based on their degree of user relevance, such as geographic location, services provided, or credentials.
InnReg assisted the client with the SEC registration process and helped regulators understand its new and innovative offering.
In addition, this SEC-regulated company hired InnReg to establish its custom fintech compliance program to meet all ongoing requirements by both state and federal regulators – including AML processes, information security, vendor management, employee compliance, registration maintenance, and reporting requirements.
The partnership with InnReg allowed the client to build an effective and scalable program that mitigates regulatory risk and builds the necessary infrastructure to promote the business’ fast growth and scalability.
InnReg is a global regulatory fintech compliance and operations consulting team serving financial services companies since 2013. We also help launch and scale fintechs with innovative compliance strategies and cost-effective managed services, assisted by scalable RegTech solutions.