Understanding Compliance Requirements and Risks for Your Fintech Business

  • November 30, 2021

The financial technology (fintech) ecosystem is growing at a rapid speed. As of 2021, the US and the EMEA region (Europe, the Middle East, and Africa) have 10,755 and 9,323 fintech startups, respectively. Financial institutions and banks are partnering with new fintech companies to improve their processes every day. But partnerships with well-established institutions also mean greater scrutiny. It means fintech companies have to be more vigilant about meeting industry standards and compliance requirements.


Why Compliance Is Important for Your Fintech Business

Compliance regulations are constantly evolving. But laws, standards, and guidelines often lag. The regulatory organizations worldwide have been unable to keep up with fintech’s growth. But things are changing, and regulatory bodies are paying more attention. So, fintech companies should get ready.

Regulatory compliance might seem like extra work. But your fintech company can benefit from meeting compliance requirements.

Here are some advantages of compliance preparedness:

  • Protection: When you are compliant, you protect your business, your customers, and your employees. You better understand local and international laws that are pertinent to your fintech business. It can help you avoid potential fines, lawsuits, and financial liabilities.
  • Trust and Reputation: Compliance is essential when your fintech interacts with other financial institutions in a business-to-business(B2B) capacity. The financial industry is a heavily regulated environment, so compliance is mandatory. If you want to build a relationship of trust with the industry’s behemoths, you have to make sure that your fintech company is following all the required laws and regulations.
  • Competitive Advantage: Compliance certifications require significant time and effort. If your fintech starts early to prepare for compliance, you can get the first-mover advantage. Also, you can charge higher fees for your services than your competitors when you have the relevant certifications.
  • Streamlined Processes: You have to audit your operations to meet compliance requirements. Regular audits can become part of your company culture. You can use the audits to streamline your processes, improve your business, and better serve your customers. So, compliance can become a strength for your company.


Compliance Certs for Fintech Businesses

Compliance certification processes are time-consuming. They can take from a few months to multiple years. However, the good news is that there are overlaps between various certs. So, once you get started with one certificate, it gets easier.

Here are a few compliance certifications that are relevant to the fintech industry:


SOC2 Compliance for Better Customer Data Protection

SOC2 compliance standard was developed by the American Institute of Certified Public Accountants (AICPA). It is a voluntary standard that is popular in the financial services industry. SOC2 is necessary if you are working in the financial B2B space. For SOC2 compliance, your systems must be trustable. It ensures that your systems are configured for authorized access, security measures, network performance, and sensitive data protection.


PCI-DSS Compliance Helps With Payment Card Information

For fintech companies who process credit card information, the Payment Card Industry Data Security Standard (PCI-DSS) compliance is a must. Businesses must meet requirements that address networking, data protection, vulnerability management, access control, and security policies.


ISO 27001: A Popular International Standard for Information Security

ISO 270001 is an internationally recognized information security standard. Even though it is not mandated, financial institutes highly value this compliance certificate. Your organization needs to have a robust information security management system (ISMS) to get this certification. It can take years and involve multiple stakeholders to get certified. But ISO 270001 can improve the prospects of your fintech company and make your services more valuable for financial institutions.


European Union (EU) Requires GDPR Compliance

For fintech companies with EU customers, General Data Protection Regulation (GDPR) compliance is crucial. GDPR is a relatively new compliance mandate that started in 2018 to protect the privacy and security of EU citizens. Violations of GDPR rules can lead to significant fines. Regardless of the location of your business, if you have EU customers, your fintech business must be GDPR compliant.


SOX Mandatory for Stock Market Operators

The Sarbanes-Oxley (SOX) Act is a US mandate introduced in 2002 to protect against corporate fraud. SOX works as a safeguard for investors. So, any fintech business working with the data of publicly-traded US companies must be SOX-compliant. Also, if your fintech operates in the stock market, SOX is mandatory.


Prepare Your Fintech for Regulatory Compliance

Initially, achieving regulatory compliance might seem overwhelming. But if you set up a step-by-step process to achieve your compliance goals, your organization can meet the requirements. Also, remember that each certification makes it easier to get the next one.

If you want to learn more about fintech compliance requirements, please feel free to contact Flugel today. Our experts are ready to help.


Written by: Gaston Valdés
General corrections and edition: Diego Woitasen