GDPR for Financial Services: Best Practices for Compliance
Oct 28, 2025
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18 min read
Contents
GDPR is more than a data protection framework. It is a regulatory requirement that directly shapes how banks, fintechs, and other financial institutions operate. Since fintechs process some of the most sensitive categories of personal data, regulators expect them to meet the standards of privacy, security, and accountability.
This article explains how the GDPR applies specifically to financial services and fintech companies. It outlines the key principles, core compliance requirements, and common challenges that firms encounter when handling customer data.
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013. If you need assistance with compliance or fintech regulations, click here.
What GDPR is and Why it Matters in Financial Services
The General Data Protection Regulation (GDPR) is the European Union’s framework for protecting personal data. It applies to any company that processes the personal data of EU residents, regardless of the company's location. For financial services firms and fintechs, this means that the GDPR often applies even when the business has no physical presence in the European Union.
Financial institutions handle large volumes of highly sensitive data, including account details, identification documents, transaction records, and, in some cases, biometric or behavioral information. Under GDPR, this type of processing is considered high-risk, and regulators hold firms to a higher standard of transparency, security, and governance.
GDPR compliance also plays a role in building trust with customers and business partners. Demonstrating a responsible approach to privacy may help facilitate the securing of partnerships with banks, attract institutional clients, and assist in regulatory due diligence reviews.
Why the GDPR Matters for Fintechs?
Fintech companies operate at the intersection of finance and technology, which puts them under the scrutiny of two layers of regulation: financial regulation and data protection law. The GDPR adds a privacy dimension to business models that already need to navigate licensing, anti-money laundering (AML), and consumer protection rules.
For many fintechs, the GDPR is especially relevant due to the innovative ways they utilize personal data. Whether combining payments with social features, integrating crypto with traditional securities, or offering AI-driven lending products, these models often involve extensive data collection and profiling. Under the GDPR, such activities are considered high-risk and subject to strict compliance obligations.
Regulators have demonstrated that fintechs are not exempt from enforcement. Even early-stage firms may face investigations if they process EU personal data without a proper legal basis or sufficient safeguards in place. For compliance officers and founders, this means the GDPR should be addressed as part of the core regulatory strategy, not as a bolt-on requirement after launch.
How the GDPR Applies to Fintech
The GDPR applies to fintech companies when they process personal data belonging to EU residents. If a fintech markets services to individuals in the EU or monitors their activity, the regulation applies, regardless of where the company itself is based.
In practice, this means that fintechs offering digital banking, payment services, crypto platforms, or lending products often fall under the GDPR, even if their headquarters are in the US or Asia. Any activity, such as onboarding clients based in the EU, tracking transactions, or profiling customers for risk assessments, involves the processing of personal data, which is covered by the regulation.
Because fintech business models often push regulatory boundaries, such as combining traditional finance with cryptocurrency or integrating with third-party platforms, compliance officers must account for the GDPR alongside sector-specific rules. This layered oversight makes GDPR not an isolated requirement but part of the broader regulatory framework that fintechs must manage from day one.
Discover how InnReg helps fintechs with regulatory and product strategy →
Key Regulators and Enforcement Authorities
The GDPR is mainly enforced by national Data Protection Authorities (DPAs) in each EU member state. Well-known examples include the CNIL in France, the BfDI in Germany, and the AP in the Netherlands. In the UK, the data protection regulator is the ICO. These authorities investigate complaints, conduct audits, and issue fines for non-compliance with the GDPR / UK GDPR.
The European Data Protection Board (EDPB) coordinates among DPAs, publishes guidance, and helps create consistent enforcement across the EU. For cross-border cases, the “one-stop shop” mechanism often designates a lead supervisory authority, usually in the country where the company has its EU headquarters.
Financial firms must also account for sector-specific regulators. For example:
ESMA and EBA in the EU set rules for financial markets and banking
FINRA and the SEC in the US, for firms with global operations, are subject to parallel obligations
Authorities in other major financial centers, such as the FCA in the UK or BaFin in Germany, frequently integrate privacy concerns into broader supervisory reviews
For fintechs, this creates a dual layer of oversight: data protection regulators focus on GDPR, while financial regulators focus on market conduct, AML, and consumer protection. In practice, enforcement can overlap. For instance, a data breach can raise questions of both GDPR compliance and operational risk under financial supervision.
Learn more about fintech compliance in our guide for founders and CEOs →
GDPR Principles for Financial Institutions
The GDPR is based on a set of fundamental principles that govern how personal data may be collected and used. For fitnechs, these principles translate directly into day-to-day practices and the structure of compliance programs.
Lawfulness, Fairness, and Transparency
Every processing activity under GDPR must have a lawful basis. In financial services, the most common are contract performance, compliance with legal obligations, and legitimate interests such as fraud prevention or risk monitoring.
Data Minimization and Purpose Limitation
Financial institutions are often tempted to collect data “just in case” it might be useful later. The GDPR directly counters this by requiring firms to collect only what is necessary for a clearly defined purpose. Consider documents that verify identity under AML laws. Firms should not store these documents indefinitely or reuse them for unrelated marketing campaigns without an appropriate legal basis. Collecting excessive data increases storage and security obligations without adding value to the compliance program.
Purpose limitation is closely related. Data gathered for one reason cannot automatically be repurposed for another.
See also:
Accountability and Record-Keeping
Firms are expected not only to comply but also to be able to demonstrate compliance.
This involves maintaining records of processing activities, conducting impact assessments as needed, and documenting decisions regarding the legal bases for processing. Regulators increasingly expect to see evidence of these steps during examinations or investigations.
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Core GDPR Compliance Requirements for Fintechs
The GDPR’s general principles become concrete obligations when applied to financial services. For fintechs, these requirements affect how they build products, how they manage customer data, and how they operate compliance programs day-to-day.
Lawful Bases for Processing Financial Data
As mentioned, the GDPR requires that every processing activity rests on a lawful basis. Financial institutions cannot collect or use personal data without first identifying and documenting which basis applies. This is a central part of accountability under the GDPR and one of the first things regulators look for in an audit or investigation.
Fintechs mainly rely on:
Contract: necessary to provide services such as opening accounts or executing transactions
Legitimate interest: activities like fraud monitoring, provided risks to individuals are balanced and documented
Consent: typically reserved for optional activities like marketing or new product features
Selecting the correct basis is only part of the requirement. Firms must also maintain records that explain why they chose this basis, how they will use the data, and what safeguards are in place. Using the wrong basis or failing to document the reasoning can expose a firm to regulatory scrutiny and penalties.
Consent Management in Financial Products and Services
The GDPR holds consent to a high standard. It must be freely given, specific to each purpose, and unambiguous. Pre-checked boxes, bundled consents, or vague language do not meet the requirement.
For fintechs offering multiple services, this means separating permissions. A customer agreeing to open an account should not automatically sign them up for promotional emails or data sharing with partners.
Managing consent is an ongoing process. Customers must have the ability to review and withdraw consent at any time, using simple and accessible tools. This often requires building preference centers within apps or portals where clients can change settings without needing to contact support.
From a compliance perspective, firms also need to maintain records of when and how consent was obtained, along with the specific wording shown to the customer. These records are critical in the event of a regulatory audit.
Data Subject Rights and Common Challenges
The GDPR gives individuals the following rights: to be informed about how their data is used, to access, correct, delete, restrict, and transfer their personal data, to object to certain processing, and to challenge automated decisions, including profiling. For financial institutions, implementing these rights is not always straightforward. A customer might request deletion of their records, but AML laws or other regulations often require the firm to retain them for several years.
The challenge is balancing these competing obligations. Firms cannot ignore a deletion request, but they can explain in writing why certain data must be retained, while deleting or restricting use of other data that is no longer needed.
This requires well-documented workflows that route requests to the right teams, compliance, legal, and operations, and clear policies that explain exceptions. Automating parts of this process may assist firms in responding within the GDPR’s 30-day deadline (extendable for complex cases), potentially optimizing resource allocation.
Learn more about AML compliance in our article →
Privacy by Design and Data Protection Impact Assessments (DPIAs)
The GDPR requires organizations to integrate privacy considerations into product design, often called “privacy by design.”
This means that fintechs should integrate safeguards at the earliest stages of development of services such as mobile payments, digital wallets, or investment platforms. Default settings should favor privacy, and data collection should be limited to what is essential.
When products involve high-risk processing (biometrics, credit scoring, or large-scale profiling, etc.), a Data Protection Impact Assessment (DPIA) is required. A DPIA evaluates the risks to individuals and outlines measures to mitigate them.
Conducting DPIAs before launch shows regulators that the firm considered the risks proactively. It also provides compliance officers with a structured approach to determine whether a feature genuinely requires the data it collects. Over time, this practice helps fintechs balance innovation with regulatory expectations.
Data Security Obligations and Breach Response Timelines
Financial institutions are a common target for cyberattacks, which makes data security a central obligation under the GDPR. Safeguards need to cover both technology and people: encryption, access controls, and system monitoring on one side; training, clear policies, and defined escalation procedures on the other. These steps lower the risk of a breach and show regulators that the firm treats information security as part of its compliance responsibilities.
If a breach does occur, the GDPR requires notification to the relevant authority within 72 hours, and, in some cases, to the affected individuals.
Meeting this deadline means having an incident response plan that has already been tested. A good plan sets out who is responsible for each step, how incidents are escalated, and includes templates for regulator and customer communications. Running regular drills helps the team respond under pressure, rather than scrambling to figure it out after an incident has already happened.
Learn more about data protection by using our checklist →
See also:
Appointment of a Data Protection Officer (DPO)
Under the GDPR, organizations that process large volumes of sensitive data or engage in high-risk activities must appoint a Data Protection Officer.
The DPO’s role is to oversee compliance, advise management, and act as the primary point of contact with regulators. Importantly, the DPO must operate independently and without conflicts of interest.
Cross-Border Data Transfers in Finance
Financial services are often global by design. Payment processors, digital banks, and investment platforms may rely on systems or vendors outside the EU to store or process customer data. Under the GDPR, this triggers strict requirements for international data transfers.
Transfers of EU personal data to non-EU countries are only permitted if adequate safeguards are in place. Firms cannot send customer data to overseas partners or cloud providers without first establishing a lawful transfer mechanism, as regulators view cross-border transfers as a high-risk area, particularly for industries like fintech that depend on international infrastructure.
There are several mechanisms available:
Adequacy decisions: The European Commission recognizes certain countries as providing adequate protection (e.g., Japan, Switzerland, and, more recently, the US under the new EU-US Data Privacy Framework).
Standard Contractual Clauses (SCCs): Contractual terms approved by the Commission that bind both parties to GDPR-level protections.
Binding Corporate Rules (BCRs): Internal policies adopted by multinational groups, approved by regulators, that govern internal transfers.
Each mechanism has documentation and oversight requirements. SCCs, for example, must be supplemented with Transfer Impact Assessments to evaluate the legal environment in the destination country.
The EU-US Data Privacy Framework and Its Impact on Fintechs
In 2023, the EU introduced the Data Privacy Framework with the US, which permits data transfers to US companies that have been certified, reducing the need for additional safeguards. For fintechs working with American vendors, such as hosting providers or CRM platforms, this can simplify compliance, provided the vendor is formally certified.
For compliance teams, the practical challenge remains the same: knowing exactly where data resides and who has access to it. Firms need to map data flows, document transfer mechanisms, and keep evidence that they have reviewed the risks. Regulators increasingly expect detailed records of these decisions, not just general assurances.
Vendor and Partner Management Under the GDPR
Fintech firms often depend on third parties. Cloud providers, KYC vendors, payment processors, and analytics tools are often core parts of operations. Under the GDPR, outsourcing does not remove accountability. When a firm shares customer data with a vendor, the responsibility for compliance remains with the financial institution.
Controllers vs. Processors in Financial Services
A central question under the GDPR is whether an organization is acting as a controller or a processor. The distinction matters because it defines who is responsible for meeting different compliance obligations.
A fintech that decides the purpose and means of processing, such as why customer data is collected, how long it is retained, and which systems it flows through, acts as the controller. The controller carries the primary duty for transparency, lawful basis, and responding to customer rights requests.
By contrast, a vendor that processes data strictly on the fintech’s instructions is considered a processor. Examples include cloud service providers, outsourced KYC vendors, or payment gateways that handle transactions on behalf of the fintech. Processors must follow the controller’s instructions and implement appropriate safeguards, but they do not decide independently how the data will be used.
In practice, the line is not always clear. Joint projects or partnerships between financial institutions may create joint controllers, where both parties determine aspects of data use and share responsibilities. For example, a neobank integrating with an investment platform may both influence how client data is processed. In these cases, the GDPR expects the parties to clearly allocate responsibilities in writing.
Data Processing Agreements (DPAs)
Where a vendor acts as a processor, the GDPR requires a written Data Processing Agreement. The DPA must set out what the processor can do with the data, the security measures they must apply, and their obligations in case of a breach.
These agreements need to reflect the actual services provided and the risks involved. For fintechs working with multiple vendors, maintaining a library of DPAs and reviewing them regularly is an essential compliance task.
Oversight of Third-Party Providers and Sub-Processors
Regulators expect firms to monitor whether vendors live up to their commitments. This can involve reviewing audit reports, requesting security certifications, or running periodic assessments.
The same applies to sub-processors engaged by your vendors. Cloud platforms, for example, often rely on their own subcontractors. Fintechs must know who those entities are and confirm that they are subject to the same protections as part of their vendor management.
Learn more about vendor compliance management →
See also:
Best Practices for GDPR Compliance Programs
Principles and obligations under the GDPR can feel abstract until firms embed them into daily operations. For fintechs, the most effective approach is building structured, repeatable practices that integrate data protection into compliance and product development from the start.
Best practices for GDPR compliance include:
Responding to Data Subject Requests Efficiently: Firms must handle GDPR rights requests within 30 days, which requires clear workflows, automation, and careful documentation of exceptions.
Developing Breach Response Plans and Running Simulations: An effective breach response plan, backed by drills and simulations, is essential to meet GDPR’s 72-hour reporting deadline and avoid chaos during real incidents.
Embedding Privacy into Product Design: Privacy must be built into products from the start, with safeguards, default protections, and DPIAs for high-risk processing like biometrics or profiling.
Training Employees and Fostering a Culture of Compliance: Regular, role-specific training and ongoing communication build a culture where privacy is part of daily operations.
Balancing the GDPR with Other Financial Regulations: Fintechs must reconcile the GDPR with competing rules like AML, MiFID II, and PSD2, documenting when financial regulations override privacy rights.
Record-Keeping vs. Right to Erasure Conflicts: The right to be forgotten often clashes with financial recordkeeping laws, requiring firms to separate deletable from non-deletable data and explain decisions clearly.
Handling Blockchain and Immutable Records: Blockchain’s immutability conflicts with GDPR deletion rights, so fintechs must plan ahead with techniques like encryption or off-chain storage of identifiers.
Consult our fintech compliance checklist for an overview →
Conducting a Data Mapping and Privacy Audit
Understanding what data is collected, where it is stored, and who has access to it is the foundation of GDPR compliance. Mapping data flows helps in identifying gaps and confirms whether each processing activity has a lawful basis. Regular audits also allow fintechs to spot outdated retention practices or overlooked vendor dependencies.
Learn more about data protection compliance →
Drafting Clear Privacy Notices and Disclosures
Notices should explain, in easy-to-understand language, what data is collected, why it is collected, and how it will be used. Lengthy legal disclaimers hidden at the bottom of a website do not meet this standard.
For fintechs, it is often best to present information contextually, integrated into onboarding screens, mobile apps, or customer dashboards, rather than relying on a single static policy. Disclosures also need to evolve alongside products.
When a firm introduces a new service, expands into a new market, or begins using data for a different purpose, it should review and update the privacy notice accordingly.
Building Effective Consent and Preference Management Systems
Consent under the GDPR is meaningful only if customers can exercise control over their choices. Fintechs should avoid blanket consents and, instead, separate them by purpose. For example, agreeing to use an account service should not automatically mean agreeing to marketing communications or third-party data sharing.
Preference management systems give users a way to revisit and adjust their decisions. A well-designed portal or app setting can let customers opt out of marketing, withdraw optional consents, or change how they are contacted.
From a compliance standpoint, fintechs should also log when and how consent was given, and what information the customer received at that time. These records provide evidence during audits or investigations.
Responding to Data Subject Requests Efficiently
Under the GDPR, individuals can request access to their data, corrections to inaccuracies, or deletion of information. Firms have 30 days to respond (extendable in complex cases), which can be a challenge for fintechs that handle large volumes of data across multiple systems.
Efficient response depends on clear internal workflows. Requests need to be identified quickly, routed to the right teams, and tracked until completion. Automation can help, for example, by generating data exports directly from customer databases or automatically flagging records that must be suppressed in marketing systems. Documenting exceptions, such as when AML rules require retaining certain records, is equally important.
Developing Breach Response Plans and Running Simulations
As the GDPR imposes a 72-hour breach reporting requirement, an effective incident response plan is essential, covering roles, escalation paths, and communication templates for regulators and customers. The plan should also specify how decisions are documented, since regulators may later review the firm’s handling of the event.
Simulations make the difference between a policy that exists on paper and a process that works in practice. Tabletop exercises or live drills can reveal gaps in communication, unclear responsibilities, or technical weaknesses. Practicing responses helps teams act decisively during a real incident rather than scrambling to coordinate under pressure.
Embedding Privacy into Product Design
The GDPR requires “privacy by design,” which means that firms must consider safeguards at the earliest stages of a product’s lifecycle. Default settings should favor privacy, and data collection needs to be limited to what is necessary for the feature to function.
When high-risk processing is involved, such as biometric authentication, credit scoring, or profiling, firms should carry out a Data Protection Impact Assessment (DPIA). A DPIA helps teams evaluate whether the data use is proportionate and what mitigations are needed. Embedding this step into the development workflow allows fintechs to manage risks before launch, rather than reacting after an issue emerges.
Training Employees and Fostering a Culture of Compliance
Even the best policies and systems depend on people following them. The GDPR requires firms to train employees on how privacy rules affect their day-to-day work.
For fintechs, this means tailored training. Onboarding teams need to understand data collection requirements, engineers need guidance on privacy by design, and customer service staff must know how to recognize data subject requests.
Embedding privacy awareness into company culture through regular communication, role-specific sessions, and leadership support promotes the GDPR as a consistent practice across the departments.
GDPR Compliance Challenges in Financial Services
GDPR obligations apply across all industries, but the way they interact with financial regulation creates unique challenges for fintechs and other financial firms. The following challenges illustrate where compliance officers and legal teams most often encounter friction.
Balancing the GDPR With Other Financial Regulations (AML, MiFID II, PSD2)
Finance rarely deals with the GDPR in isolation. They also operate under a network of sector-specific rules that can sometimes pull in a different direction. For example, KYC and AML frameworks require institutions to retain identification records, transaction data, and risk assessments for a minimum of five years. At the same time, the GDPR gives individuals the right to request the deletion of their data. Reconciling these conflicting requirements is not straightforward.
The same tension appears in other areas. MiFID II obliges broker-dealers to record and archive employee communications for supervision purposes, while PSD2 requires that customer payment data be shared with third-party providers under open banking rules.
Each of these frameworks has its own standards for retention, access, and sharing. Compliance teams must, therefore, adopt a layered approach: mapping obligations across regimes, documenting where laws override GDPR rights, and being able to justify those decisions to regulators.
Recordkeeping vs. Right to Erasure Conflicts
One of the most frequent areas of customer misunderstanding relates to the “right to be forgotten.” The GDPR allows individuals to request the deletion of their data, but financial institutions cannot automatically comply. Firms must keep many categories of personal data for regulatory or contractual reasons( e.g., trade records, tax information, or AML documentation).
As such, firms should establish workflows that distinguish between deletable and non-deletable data. When a request is received, the firm can remove information not subject to retention requirements while explaining in writing why other categories must be kept.
Properly documenting these refusals and tying them back to specific laws protects the firm from accusations of non-compliance while maintaining transparency with the client.
Handling Blockchain and Immutable Records
Blockchain introduces new complexity for GDPR compliance. Public ledgers are designed to be permanent, which conflicts with the GDPR’s requirements for deletion or correction of personal data.
Fintechs exploring blockchain-based solutions must consider techniques such as encryption or off-chain storage of personal identifiers. These approaches help reduce the risks of non-compliance but require careful planning at the design stage.
Learn more about EU crypto regulations in our guide →
Misconceptions About Consent, Legitimate Interest, and Encryption
The GDPR is often misunderstood in financial services, especially when it comes to the legal bases for processing and the role of technical safeguards. These misconceptions can create real compliance risks if left unaddressed.
Consent Is Always Required
A common misconception is that consent must be obtained for all forms of data processing. In reality, many core financial activities are based on contracts or legal obligations, not consent. For example, verifying a client’s identity under AML laws or processing transactions under a service agreement does not require explicit consent. Relying on consent in these cases can backfire because customers can withdraw it at any time, potentially disrupting services that are legally or contractually necessary. Firms should reserve consent for optional activities, such as marketing or participation in pilot programs, where the customer has a genuine choice.
Legitimate Interest as a “Catch-All”
Another frequent error is treating legitimate interest as a blanket justification for any processing. While it can apply to activities like fraud monitoring or internal analytics, the GDPR requires firms to balance their interests against the rights of individuals.
This involves conducting and documenting a legitimate interest assessment (LIA). Without this step, regulators may find that the basis was misapplied. Fintechs should approach legitimate interest carefully and support it with evidence that risks have been considered and mitigated.
Encryption Solves All Problems
Sometimes, encryption is considered a universal solution to GDPR compliance. While it is an important safeguard, encryption does not remove data from the scope of the GDPR. If the organization holds the decryption keys, the information is still considered personal data.
Encryption reduces the impact of a breach and can lower regulatory penalties, but it does not replace obligations such as responding to data subject requests or limiting retention. For fintechs, encryption should be part of a broader security strategy that includes access controls, monitoring, and incident response planning.
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The GDPR for financial services is more than a regulatory requirement. It is a practical framework that touches every aspect of a fintech’s operations.
From onboarding and data retention to vendor oversight and cross-border transfers, financial firms handle data in ways that attract both privacy regulators and financial supervisors.
For compliance officers, founders, and legal teams, the focus should be on building programs that are both proactive and adaptable. Mapping data, documenting lawful bases, managing vendors, and embedding privacy into product design all help mitigate risks while supporting innovation.
How Can InnReg Help?
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013.
We are especially effective at launching and scaling fintechs with innovative compliance strategies and delivering cost-effective managed services, assisted by proprietary regtech solutions.
If you need help with compliance, reach out to our regulatory experts today:
Published on Oct 28, 2025
Last updated on Oct 28, 2025
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