Financial technologies are created to innovate former approaches to solving challenges within the realm of financial services. FinTech is rapidly developing, and due to this accelerated growth, the regulatory process has had difficulty keeping pace. Existing financial institutions are subject to strict regulations, but FinTech companies now need to stay informed and look further into how regulations apply to their business. As the industry continues to change and develop, more compliance standards are expected to be introduced.
If your FinTech company isn’t following compliance regulations, you may be subject to expensive fines and suffer a bad reputation if customers feel that their data isn’t being protected properly. Many companies are choosing to implement automated compliance programs to more easily identify potential violations before it becomes a problem. With automated programs, new compliance regulations are automatically introduced, eliminating the possibility that a human may accidentally overlook a new compliance standard.
Currently, there are several existing and new components of compliance that all FinTech companies need to be aware of:
1. Digital-only Enterprises: In the coming years, there will be new regulations set forth for how FinTech and digital-only banking services operate. In 2019, the OCC released a new proposal for a national chapter for FinTech. This will allow FinTech companies to offer full banking services to customers but will cause them to be subject to more scrutinized regulations in the future. This is why now is the time to start implementing security measures and new methods of consumer communication.
The OCC is still determining how to best manage digital-only enterprises, but FinTech companies in this sector should obtain FDIC charters to add legitimacy to their services and protect their interest.
2. AML Scrutiny: Banks and other financial institutions have had to comply with anti-money laundering compliance or AML for decades, but now, FinTech companies will also need to comply with these standards or face the consequences. One digital currency company received a $700,000 fine from FinCEN for refusing to create a program to fight money laundering.
3. CFPB: The Consumer Financial Protection Bureau (CFPB) has monitored financial institutions like banks and lenders for years over violated consumer rights. FinTech companies will now also be subject to the same CFPB standards in relation to how they treat the consumer.
This comes at a time when people are hyper concerned about how their information is being accessed, stored, and protected. In July of 2020, the CFPB announced that it will be releasing prospective new regulations in regard to how financial industries collect customer data and whether or not it’s in the best interest of the customer.
4. KYC: Know Your Customer (KYC) compliance prioritizes fraud and terrorist protection. Knowing your customer base is key in any business, but will also become a factor in the way in which FinTech compliance is adapted. KYC compliance refers to accurately monitoring customers’ accounts in order to identify suspicious activity. This helps to prevent fraud and alert customers to unusual actions quickly. It also ties in with AML and recognizes when potentially illegal activity is taking place.
5. PCI DSS: All FinTech companies need to be aware of PCI DSS—Payment Card Industry Data Security Standard. These requirements regulate the way that a payment service company protects and uses its customers’ data. In the world of FinTech, PCI DSS focuses on safeguarding consumer data, limiting control over customer information, and creating a secure payment network.
From digital payment platforms to online credit lenders, FinTech spans across many different financial sectors, making it difficult to regulate. As more people switch to digital-only services, compliance standards are changing rapidly, which is why it’s important to stay in the know.
Based on this latest information, FinTech companies need to begin planning ahead for the future of compliance and regulations that have traditionally only been for banking institutions. As the industry grows, the need for new regulations will as well. FinTech companies should stay ahead of the curve and understand the future of compliance, so they can be adequately equipped when the time comes to adhere to new standards and practices.
Questions? Ask us anything!