What Fintechs Need To Know About Compliance

December 11, 2022

What Fintechs Need To Know About Compliance

When it comes to growth industries, fintech is dominating the pack. Consumers are now more than ever accessing financial services from a technology company and not their bank. The demand for easy access to financial services and faster payments means that fintech companies must continually adapt to meet these demands.

While easier access to financial services and faster payments are vital factors, everything you do must comply with banking regulations. By necessity, these regulations are always changing. As fintech evolves, banking operations must adjust to maintain regulatory compliance.

Key Takeaways: Companies must adhere to a host of state and federal compliance regulations.

Solution: Services like Victor can streamline banking compliance so fintechs can focus on running their product.

This guide walks you through key principles you need to know to meet expectations and keep up with compliance requirements that sponsor banks expect of you when engaging in partnership discussions.

The Ever-Changing Cycle Of Regulation

Regulators want consumer protection on services offered by fintech and ensure that sponsor banks are not overexposed into industries that will jeopardize their core business.

New products and services that are offered by fintech are new and buck the trend of traditional banking/finance. It is a change to how consumers and businesses access financial services and how they use them. This trend means that more consumers/businesses will have limited interaction with their bank. Novel business models introduced by fintechs means that potential bad actors may exploit weaknesses in the new model. Additionally, oversight and regulations of these new business models become difficult and complex.

How Fintech And Banking Go Together

Fintech solutions involve storing or moving consumer/business funds, which can get complicated. When you add juggling regulations that continually change into your role, compliance management becomes another full-time job added to your (and your staff’s) plate.

But that’s exactly what you need to do. Any lack of adherence to regulations can be costly to you and the businesses you serve.

US Regulations And Penalties For Non-Compliance

Billions of dollars are laundered through the US every year, particularly in areas like real estate, where deceptive practices involve large sums of money. The government frequently tightens its policies to prevent this action.

Over the years, policies like the Anti-Money Laundering (AML) Act — also referred to as the Bank Secrecy Act (BSA) — and other vital laws have evolved from this attempt.

The three vital laws fintechs and banking institutions must focus on include:

  1. BSA Statute and Regulations — Establishing the guidelines financial institutions must follow on programs, recordkeeping, and reporting
  2. BSA Act Compliance (Section 326.8) — Establishing processes for BSA monitoring to ensure institutions are in compliance with all BSA statutes and regulations
  3. Suspicious Activity Reports (Part 353) — Requiring banks to report known or suspected violations of federal law or transactions that could be related to money laundering

Non-compliance penalties for perpetrators and financial institutions range from civil to criminal. The person directly involved can lose their assets and spend up to 20 years in prison and fines up to $500,000.

If the financial business is found to be negligent, the penalties include revoked charters. Removal of the employees or board of directors involved is likely, with a bar from any future banking jobs.

Willful violations of the BSA by a bank employee include penalties of criminal fines up to $250,000 and five years in prison.

If a bank makes a pattern of these violations, it faces criminal sanctions of $1 million or doubles the value of the transaction (whichever is greater).

Steps To Take To Get And Stay In Banking Compliance

Regardless of the area your fintech company services, there are a few must-do steps you need to take to ensure you’re in compliance with banking regulations.

Your financial solution may be regulated by traditional banking system laws as well as those covering the business sector. These steps are vital as you develop your product.

1. Use An Expert On Financial Institutions

Right now, your primary focus is on developing the best possible product while meeting high levels of consumer satisfaction.

Dividing your attention between that and all the regulations involved can leave one side short.

Instead, bring in an expert on financial institutions, such as Chartwell Compliance, to help you navigate the myriad of state and federal regulations when it comes to bank-fintech partnerships. In addition, an organization such as Chartwell can help you set up the right processes and procedures within your organization that will help you maintain regulatory compliance as well as risk mitigation strategies.

Read more: Real-Time Payments Have Arrived. In Real Time … For Real

2. Get To Know All Compliance Regulations

Tasking the experts with the intricate parts of compliance is one thing, but you must know all compliance regulations well enough to integrate them into your business decisions.

It is important for a Fintech company to familiarize themselves with the regulatory authorities that oversee their industries as well as the regulations that they publish. Below are the most common regulatory agencies that Fintechs need to be aware of: t

  • Financial Crimes Enforcement Network (FinCen)
  • State Money Transmitter Regulators
  • Financial Industry Regulatory Authority (FINRA)
  • Federal Trade Commission (FTC)
  • Federal Reserve
  • Federal Deposit Insurance Corporation (FDIC)
  • Commodity Futures Trading Commission (CFTC)
  • U.S. Securities and Exchange Commission (SEC)
  • Consumer Financial Protection Bureau (CFPB)
  • Office of the Comptroller of the Currency (OCC)

It sounds complicated, but completing Step One first helps you here. Your regulatory expert can train you, other senior management, and your compliance department on the must-know aspects.

3. Develop A Compliance Program Workflow

Professional working on compliance workflow

Now that you know what you must do to get and remain in compliance, how will you ensure it happens?

The compliance program workflow you install and the compliance officer you assign to the role should cover this aspect.

Consider methods for risk management automation and covering your due diligence in your workflow. The program should be scalable and adjustable as risk and compliance regulations change and your business expands.

Common Challenges In Fintech Banking Compliance

Following the right steps to create a compliant business model is vital to your success.

Along the way, you’ll run into challenges, which is to be expected in when working with the banking industry.

Some of the most common challenges in fintech banking compliance are overcome with preparation and avoidance.

Oversight and Ongoing Monitoring

For instance, developing the right daily procedures and risk assessment practices solves many complications. Bring in an expert to guide you as you devise your framework from the ground up, and many obstacles can be avoided altogether.

Security And Data Breaches

Security and data breaches are other common concerns in finance. Even mega companies like Yahoo and Equifax, with millions of dollars in protection, have been breached before.

These issues are expensive to fix, often destroying a startup business.

Yes, compliance is expensive. But it’s not as pricey as violating regulations or letting your security slack. Part of your business plans must include preparing for the expense of regulatory compliance as well as security and data protection.

Staying Up-To-Date

One last challenge to be aware of is the necessity of continually updating your service and software platforms.

This is especially crucial when you add new technology, staff, or partners. Include a system in your workflow that verifies compliance between the changes and all banking regulations.


Understanding and following banking compliance and regulatory requirements as a fintech business are crucial to your success. Finding the right technology and bank partners that understand your business vertical and associated compliance issues ensures that you can launch your fintech business and scale it.

Contact us to learn more about our API and bank partners to help you launch your fintech product.

James Palmer

James is a payments and fraud technology subject matter expert with a proven track record orchestrating the deployment of SaaS, and On-Premise technology solutions. James has a high degree of understanding of PSD2, and the impending changes that will reshape payments in region for merchants, fraud prevention solutions, and large financial institutions. James has a blend of technical competency, and industry expertise that uniquely position me as a payments and fraud SME within the EMEA region.

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