Fintech Compliance Practices

It is important to understand how your fintech company can adapt and comply with Fintech regulations. The decentralization of Fintech increases the difficulty of reducing risks and identifying the relevant regulations. Here are a number of best practises when it comes to Fintech Compliance:

1. Digital-only banking
While the Office of the Comptroller of the Currency (OCC) is considering how to regulate this changing banking environment, online-only Fintech companies should proactively develop a consumer interaction policy as well as a security policy.

2. Data privacy and protection
Fintech companies should also keep track of their data handling which is regulated by the global standards (or at least they operate that way). The standards are set European Union as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) together with its predecessor the California Privacy Rights Act (CPRA).

3. Develop an AML policy
Just like regular banks, Fintech companies must incorporate anti-money laundering (AML) into security procedures and create policies or manuals. Digital currency is particularly vulnerable to AML as it allows for anonymous and cross-border transactions. To combat digital currency AML, some countries now track device identifiers and digital wallet addresses. Two major Fintech AML fighters include blockchain and machine learning (i.e., algorithms that can detect subtle irregularities). Notably, not implementing an adequate AML plan can result in a civil penalty that could impact the company’s ability to refine its technology, and negative publicity that may undermine the confidence of its customers and investors..

4. Consumer awareness
The Consumer Financial Protection Bureau (CFPB) has shifted more attention to Fintech in the last few years. Fintech companies, particularly lenders, must ensure standard CFPB standards are carried over into Fintech operations. Fintech companies must ensure customers are given opportunities to improve their credit or be considered for loans at reduced rates. The CFPB provides a free, complete list of the Code of Federal Regulations that will help identify which regulations apply to your company’s operations. Although the list does not specifically mention Fintech, the CFPB can still fine Fintech companies as they fall under financial institutional purview.

5. Know Your Customer (KYC) Compliance
Oh this one! KYC applies to Fintech just like for banks. This means Dodd-Frank reforms, Fair and Accurate Credit Transactions Act (FACTA), and the Customer Due Diligence Final Rule apply. The regulations address onboarding digital customers and identifying who really operates a bank account. KYC slides right into AML and CTF, the goal is to mitigate fraud by better monitoring customer activity.

6. What does the future hold
Fintech is not slowing down anytime soon. It continues to evolve and expand at a rapid rate. However, the regulation and the regulatory burden is following the fintech’s shadow. It is absolutely vital that companies dialogue with regulators and industry experts to stay informed and ahead of changing standards.

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