Fintech Compliance: 20+ Regulations Your Company Should Know

July 15, 2022
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As consumers seek accessible, easy-to-use solutions in everyday life, we’ll see more people adopting Fintech solutions as alternatives to their traditional banking, insurance, and investing methods.

As of 2019, 48 Fintech unicorns were part of a Fintech market valued at $187B USD. With interest - and investment - in Fintech rising, the industry is rapidly expanding. With this expansion comes a need to regulate, which can be a cumbersome task when new rules are popping up every year.

To ensure you can navigate the risk and compliance side of your Fintech operation, we’ll cover the following topics:


First, we’ll explore what Fintech compliance means generally, and then look at the main compliance regulations that apply in different regions. We’ll also cover steps to follow to ensure your Fintech operation stays compliant.

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What is Fintech Compliance?

Fintech compliance refers to the obligation of financial service institutions to adhere to regulatory laws regarding data privacy, consumer security, and the use of financial technology in general. Ultimately, these laws protect consumers and investors in the financial services industry.

Regulations change from region to region, under different government jurisdictions, so different regions have their own regulatory bodies that manage the legislation and enforcement of laws in regards to Fintech solutions. Typically, these laws protect consumers, and set out rules for how supervision and regulation will be conducted. Various regulatory bodies are then responsible for specific areas of the law.

We will specifically be discussing the different financial services regulators and regulations that apply to the Fintech industry, and we’ll start with listing the regulations that apply in different places.

Fintech Compliance Regulations in Different Places

As financial services grow and develop - and expand into modern avenues of tech - financial regulations continue to tighten.

Governments are developing new laws and guidance as new technologies emerge, and these laws are constantly evolving to keep up with the pace of fraud. Fintech compliance regulations are meant to help risk and compliance teams navigate financial service laws and regulations, ensuring consumer safety along the way.

While laws and regulations differ greatly from region to region, many regulations work to achieve the same goals - protect consumers, maintain the integrity of overall markets, and regulate the financial services industry.

To make sure you are staying compliant, you’ll want to know the regulations for the area you operate. Below, we cover some of the main regulations in the US, the UK, and the European Union so you have an idea of what laws and regulations apply.

Fintech Regulations in the United States (US)

As one of the largest growing Fintech markets, the United States has had to keep pace with regulating the Fintech space. New regulations have been established, and many traditional financial service regulations have been adopted to apply as well.

In some cases, Fintech solutions are quasi-regulated by the traditional banking system, as they work so closely with each other.

Below, we cover the main regulators responsible for managing the Fintech market in the United States:

Regulator

Objective

Financial Crimes Enforcement Network (FinCen)

Gathers and analyzes information about financial transactions to combat domestic and international financial crimes, such as money laundering and terrorist financing.

Financial Industry Regulatory Authority (FINRA)

A private, independent American corp that acts as a self-regulatory organization (SRO) for the financial industry, regulating member brokerage firms and exchange markets.

Federal Trade Commission (FTC)

A U.S. government agency responsible for protecting consumers in the United States, they enforce civil antitrust and consumer protection laws.

Consumer Financial Protection Bureau (CFPB)

A U.S. government agency responsible for consumer protection in the financial industry specifically. They oversee banks, credit unions, security firms, lenders, and other financial businesses.

U.S. Securities and Exchange Commission (SEC)

A U.S. government agency responsible for regulating the financial market, specifically to enforce laws against market manipulation on exchanges.

Commodity Futures Trading Commission (CFTC)

A U.S. government agency responsible for regulating the derivatives market, including futures, swaps, and specific types of options.

Office of the Comptroller of the Currency (OCC)

An independent bureau of the United States Department of the Treasury, it charters, regulates, and supervises national banks and other financial institutions, as well as agencies of foreign banks that operate in the U.S.

National Credit Union Administration (NCUA)

A government supported insurer of credit unions, providing deposit insurance as well as regulating and supervising federal credit unions.

State legislatures / legislations

States often have unique regulations that apply only to financial operations in that state. Always be aware of what region-specific regulations apply to your operations and be aware of all risk and compliance regulations you need to follow.



Now that you know which regulatory bodies you need to answer to, let’s explore some of the main regulations, acts, or directives that apply to Fintech businesses.

Now that you know which regulatory bodies you need to answer to, let’s explore some of the main regulations, acts, or directives that apply to Fintech businesses.

  • Bank Secrecy Act (BSA): Also known as the Currency and Foreign Transactions Reporting Act, this law requires financial institutions to help in detecting and preventing money laundering along with U.S. government agencies.

  • Anti Money Laundering Act (AMLA): This act requires the Treasury Department to set forth policies and regulations that protect against money laundering and terrorist financing, and it compells organizations to develop and adhere to risk-based AML compliance programs.

  • USA PATRIOT Act: More commonly known as the Patriot Act, this law came into effect as a response to the attacks of September 11th, with the aim of tightening and strengthening national security through enhanced foreign terrorism monitoring. For Fintech compliance, it means monitoring and preventing terrorism financing.

  • Electronic Fund Transfer Act (EFTA): Enacted in 1978, this act establishes the rights and liabilities of consumers when it comes to funds transferred electronically, which includes monitoring the use of ATMs, debit cards, and automatic withdrawals from bank accounts.

  • Red Flag Rule: Established by the FTC and the NCUA, it works to prevent identity theft in the financial industry, and also improves consumer access to credit information, the accuracy of consumer reporting, and financial education and literacy.

  • Truth in Savings Act (TISA): As part of the Federal Deposit Insurance Corporation Improvement Act of 1991, it forces financial institutions to disclose terms of conditions regarding interest rates and fees for savings accounts - ensuring that banks are transparent about all costs to consumers.

  • Truth in Lending Act (TILA): Enacted in 1968, this law promotes education around consumer credit usage, ensuring costs associated with using credit and borrowing are clearly disclosed to consumers prior to borrowing.

  • Fair Credit Reporting Act (FCRA): Passed in 1970, it ensures consumer information is accurate, fair, and private, protecting consumers from the inclusion of information on their credit report that could affect their credit unjustly.

  • Equal Credit Opportunity Act (ECOA): Enacted in 1974, this law protects credit applicants against discrimination based on racae, color, religion, national origin, sex, mairtal states, or age, as well as other limited financial conditions.

  • Securities Act of 1933: Also known as the Truth in Securities or Federal Securities Act, it requires financial institutions to provide investors with information about securities being offered for public sale, and is designed to protect consumers.

  • Gramm-Leach-Bliley Act (GLBA): Also known as the Financial Services Modernization Act of 1999, it repealed a portion of the Glass-Steagall Act of 1933, enabling commercial banks, investment banks, securities firms, and insurance companies to consolidate.

Fintech Regulations in the United Kingdom (UK)

The United Kingdom has two main regulatory bodies related to risk and compliance operations; the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). Below, we cover those two main authorities, along with a few subbranches of those organizations that focus on more specific tasks.

Below are the main financial services regulatory bodies operating in the United Kingdom:

Regulator

Objective

Prudential Regulation Authority (PRA)

This financial service regulatory body is responsible for regulation and supervision of banks, credit unions, investment firms, insurers, and other financial services.

Financial Conduct Authority (FCA)

This regulatory body operates independent from the UK government, and operates by charging fees to members belonging to the financial services industry. In turn, it regulates financial firms offering consumers financial services and works to maintain the integrity of the financial market at large.

Payment Systems Regulator (PSR)

Created by the FCA, this regulatory body operates separately, responsible for promoting competition and innovation in payment systems, and are bound to work in the interests of the organizations and people that use them.

The Investing and Saving Alliance (TISA)

A collective of member firms that works to improve the financial wellbeing of consumers in the UK through regulation of member firms and standardization of regulation across the industry.

Joint Money Laundering Steering Group (JMLSG)

This private body produces guidance on how to comply with regulatory obligations in the financial sector, specifically in conjunction with the UK anti money launder (AML) and counter terrorist financing (CTF) laws.

These are the main bodies that monitor Fintech regulatory compliance in the United Kingdom, along with some of the most closely related groups.

Below, we outline the main regulations that apply to risk and compliance professionals in the UK:

  • Financial Services and Markets Act 2000 (FSMA): Aimed at improving the regulation of the financial services industries, it was this act that led to the creation of the Financial Services Authority (FSA), the predecessor to the FCA and PRA. It resolves disputes as a free alternative to going through the court system.

  • Proceeds of Crime Act 2002 (POCA): Sets in place an avenue for the confiscation or civil recovery of the proceeds of crime, and includes the core legislation regarding money laundering.

  • Final Guidance on Cryptoassets: Also referred to simply as “the Guidance”, this publication helps firms determine whether their cryptoasset activities are subject to FCA regulation, specifically which categories of tokens need to be regulated (and how).

Fintech Regulations in the European Union (EU)

With so many member states, the European Union has a difficult task of managing AML and fraud legislation so it works effectively in different national jurisdictions. To manage this effectively, a few centralized organizations manage the regulation of financial services.

Below, we cover the main financial regulatory bodies in the EU that are related to risk and compliance operations:

Regulator

Objective

European Securities and Markets Authority (ESMA)

Functioning as a financial market watchdog in the EU, ESMA is responsible for securities legislation and regulation for financial services, overseeing financial markets in Europe, strengthening investor protection, and facilitating cooperation between national authorities.

Anti-Money Laundering Authority (AMLA)

Operating as a central EU authority, it’s tasked with combating money laundering, as well as supervising financial institutions and setting standards to follow that inhibit money laundering activities.

European Central Bank (ECB)

As an integral institution in the European Union, the ECB establishes monetary policy for the European Union, administers foreign exchange reserves to member states, and sets the monetary objectives and interest rates of the EU.

European Banking Authority (EBA)

Headquartered in Paris, this regulatory body conducts stress tests on European banks to identify weaknesses and ensure transparency in the financial system.

The above are some of the core bodies that are responsible for regulating and supervising the financial industry in the European Union.

Below, we cover the top EU regulations risk and compliance professionals should be aware of and adhere to:

  • EU Anti Money Laundering Directives (AMLDs): Periodically updated, and currently on its 6th iteration (6 AMLD), these directives include regulatory requirements of governments of member states, thus ensuring the EU follows adequate AML regulations. The 5th Directive added significant updates regarding cryptocurrency regulation, and the 6th Directive expanded the regulatory scope and increased criminal liabilities.

  • Revised Payment Services Directive (PSD2): The successor to the original Payment Services Directive (PSD), it regulates payment services (and the organizations that provide these services) and aims to increase competition and aid in developing consumer protections.

How to Follow Fintech AML Compliance Regulations

Since each region has different regulations, you’ll need to make sure you know which rules apply to you based on where you operate. For that reason, it’s hard to have a universal standard for what to do to follow AML compliance regulations.

However, there is some consistency in the types of things regulatory bodies work towards and the types of regulations they are able to enact and enforce. Below, we outline a standard process for ensuring you stay compliant within the areas you operate. Remember to consult the specific regulations for your area.

Step 1: Hire a compliance expert or seek legal counsel

Adequate compliance is not easy to achieve, and is a complex - and extremely important - process. Ensure that you have an AMLcompliance officer on hand or that you seek legal advice from an expert to ensure that you are aware of all AML regulations and requirements you need to follow.

These professionals will help you navigate the complexities of compliance, and help you develop a program that ensures your team keeps your consumers - and your own platform - entirely safe from bad actors.

Step 2: Consider AML compliance regulations and requirements

Before starting, it’s important to have a clear picture of which AML compliance regulations apply to your organization. Think critically about how you want to address them, and how best to self-regulate according to these requirements.

With the right system in place, you can not only ensure you adhere to the most basic regulations, but also stay abreast of changes to the regulations and stay compliant.

Step 3: Develop a scalable AML compliance program

Having a robust AML compliance program for your Fintech operation is imperative for adhering to all risk and compliance regulations. It will ensure that you collect and manage user information securely, and perform all checks required to stay compliant - including at the point of onboarding and afterwards.

Having a solution that will automatically scale as your business grows - and as fraud and AML regulations evolve - will keep you (and your customers) safe from potential bad actors.

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Step 4: Onboard customers in accordance with KYC/KYB rules

Adhering to all compliance protocols when onboarding new customers is extremely important, as you can eliminate fraud at the source, before it even occurs. Follow all KYC/KYB regulations and ensure you perform adequate identity verification checks.

By performing rigid checks at the point of account creation, you eliminate the potential for criminals to gain access to your platform and exploit it. This allows you to manage your customer base and keep your platform safe from fraudulent accounts and malicious activity.

Step 5: Use suspicious activity & transaction monitoring

Maintaining security and adhering to compliance regulations requires consistent work. Having a solution that monitors and reports on suspicious activity allows you to stop fraudulent activity in its tracks. With thresholds set up properly, you can reduce fraud loss and false positives, allowing you to increase revenue while keeping your users safe.

Step 6: Automate risk & compliance case management

Managing risk and compliance cases - such as SARs - through to completion is a time-consuming process. Automate case management tasks to save your staff time, reduce errors in filings, and ensure you never miss a deadline. This allows you to mitigate the costs of reporting, and free up staff time where it’s more useful.

Step 7: Follow changing regulations and update tech regularly

Financial service laws and regulations are changing rapidly to keep pace with new technology and increasing consumer demands in terms of speed and access to services. With fraud schemes evolving frequently, you need to stay up-to-date on changing regulations, and ensure your tech stack is being updated to stay compliant.

5 Biggest Fintech Compliance Issues to Watch Out For

Compliance is complex and challenging to navigate, and even trickier to execute on. With so much at stake, and so many things that could go wrong, it’s always important to think about the biggest challenges you’re facing.

Below, we cover the top 5 issues to watch out for when trying to ensure your Fintech platform is compliant:

1. Vulnerabilities or breaches in your data security

Your main objective will always be to ensure consumer protection and data security. Vulnerabilities in your platform present risks to users, and will need to be closed immediately. Even worse, failures to adhere to regulations can lead to data breaches that can cost your reputation.

How to solve it:

Keep your platform free from fraudulent accounts by providing streamlined onboarding, and keep up with malicious actors with suspicious activity reporting. This will help you minimize vulnerabilities in your system and ensure you catch any that may slip through.

2. Regulatory compliance is costly, but necessary

Regulatory compliance is a costly process, as it has a lot of variables to consider and many moving parts.

It involves staying abreast of dynamically changing regulations, evolving fraud schemes, and best practices to protect against malicious threats; combating fraud and money laundering through suspicious activity and transaction monitoring; and filing, reporting, and managing cases after they are identified. All of this takes significant time and processing power, whether it’s manually operated or automated.

How to solve it:

Ensure you are staying apprised of all applicable regulations, new fraud schemes, and best practices to detect and prevent fraud. Ensure that your risk and compliance software is updated regularly to keep up with the changes to fraud that are consistently occurring. Either hire an expert or ensure you have a solution that automatically stays up-to-date of the newest threats.

3. Failure to apply risk and compliance at the development stage

Risk and compliance shouldn’t be an afterthought when creating a Fintech platform; in fact, rather the opposite. Compliance will play a big role in how you need to interact with your customers, what data you need to collect and store, and even how your UI looks.

How to solve it:

It’s best to consider risk and compliance at the development stage, and ensure you’re creating with the regulations you’ll have to adhere to in mind. This will save you loads of time making corrections in the future, and avoid a last minute scramble to make your product compliant.

4. Updating your product without enhancing compliance

As you add features, services, and products to your offerings, you’ll need to make sure that these new additions adhere to compliance requirements. If you fail to synchronize your new product development with proper compliance updates, you run the risk of exposing yourself to penalties and fines.

How to solve it:

Synchronize your compliance team with your product development workflow, ensuring that you have your team researching all compliance requirements, working closely with the development team to ensure the final product adheres to any requirements it has to follow, and ensure that any other updates are running parallel to the development of the product. With all this operating in tandem, you ensure you’re fully compliant at launch.

5. Ensuring technology keeps pace with regulatory changes

One of the greatest challenges is ensuring your tech - and all compliance components - are keeping pace with the evolving regulatory environment. With new fraud schemes emerging regularly, it’s important that your team is aware of these changes, how the regulations apply to your platform, and that you have the workflow set up to update the tech to account for new regulatory requirements.

How to solve it:

You’ll either need to hire an excellent risk and compliance officer to stay on-top of all pertinent regulatory changes. You’ll also need an engineering team working around the clock to implement these changes. Alternatively, you can rely on best-in-class risk and compliance solutions that not only stay on top of changes, but also apply these changes to the tech stack, without you having to do anything.

Fintech Compliance Checklist: What to Do

Now that you know how to stay compliant, the biggest obstacles in your way, and the regulations you need to pay attention to, we’ll help you make sure you haven’t missed a single thing along the way.

Download the AML compliance checklist to make sure you cover all your bases.

Download AML Compliance Checklist

No matter what your Fintech platform may be - a neobank, an exchange, a lender, etc. - you need to stay compliant and keep consumers safe while they use your platform. By following the steps we’ve outlined - and making sure you’ve used our handy checklist - you’ll ensure you stay compliant.

Gain the competitive edge over competitors by using a solution that not only automates case management and streamlines user onboarding, but runs top-notch transaction monitoring that is constantly updated to meet the newest, most threatening fraud schemes.

Schedule a demo today to learn for yourself how Unit21 can effectively manage your risk and compliance operations. Don’t just take it from us, see how Intuit was able to reduce investigation alert time by 65% and enable further growth.

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