How to Maintain Fintech Compliance

The fintech industry is highly regulated [generally at the state level, which varies sometimes greatly from state to state] due to the sensitive information it transmits and the disastrous repercussions of having poor compliance measures. Noncompliance impacts not only the business involved, but also its customers, investors, partners, and other financial institutions. 

This article explores key fintech compliance areas and why compliance is critical, common compliance challenges, and measures fintech companies can take to maintain compliance.  

What Is Fintech Compliance?

Fintech compliance is the adherence to and implementation of various standards and regulations that govern the financial technology industry. These laws address the common risks of operating in the financial sector, including data breaches, consumer protection, and financial crimes.    

The specific regulations a fintech company must adhere to depends on its business model and jurisdiction. But there are common compliance areas that include:

• Anti-money laundering (AML) rules: These are regulations enacted to fight financial crimes, such as terrorist funding and money laundering. Key measures a fintech must take include having proper Know Your Customer (KYC) procedures for identity verification, monitoring transactions, and reporting suspicious behavior. 
• Data protection: Companies must ensure secure data access, transmission, and storage by implementing cybersecurity measures and conducting regular risk assessments. The General Data Protection Regulation (GDPR) and the California Consumers Protection Act (CCPA) are some data protection laws fintechs must adhere to.   
• Consumer protection and fair lending practices: Laws such as the Fair Credit Reporting Act (FCRA) and the Truth in Lending Act (TILA) protect consumers from unfair business practices and product misinformation.   
• Regulatory reporting: The Bank Secrecy Act (BSA) requires fintechs to submit regular reports of their compliance status, financial health, and requested disclosures.  
• Licensing and registration: Fintech companies must obtain the proper business licenses depending on their operating model and jurisdiction.

Why Is Compliance Critical for Fintech Companies?

Fintech companies process massive sensitive information about their digital assets, customers, businesses they partner with, and the overall financial ecosystem. This makes them a top target for cyberattacks, which can be manipulated for crimes such as identity theft, money laundering, and fraud. Compliance guides fintechs on major issues like data security and how to uphold transparency and fairness in financial transactions.

Regulators take compliance seriously too. Violation penalties can range from fines in millions of dollars to the suspension of business licenses. In January 2025, Block, Inc., the parent company of mobile payment service CashApp, paid an $80 million fine for allegedly violating BSA and AML regulations. In addition, the penalty for security breaches involving PCI DSS noncompliance is $500,000 per incident. 

Other risks of non-compliance are:

• Loss of trust and credibility from customers and investors
• Increased exposure to security breaches
• Increased costs, such as payment processors who charge higher fees to handle non-compliant businesses 
• Rough entry into the market for startups
• Legal actions, such as lawsuits and criminal charges  

What Compliance Challenges Do Fintech Companies Face?

Compliance is a major challenge in fintech. In a 2023 survey of more than 200 fintech companies, 93 percent said they found it challenging to meet compliance standards, while more than half paid fines for noncompliance that year.  

Common compliance challenges fintech companies struggle with are:

• Vulnerability to cyber threats: Due to the nature of financial data and the reliance on technology for operations, cybersecurity is a major challenge for fintech companies. Cyberattacks are also becoming more sophisticated over time, and this requires more vigilance.   
• Constant regulation changes and updates: The fintech industry is still evolving, meaning companies must stay updated and continuously adapt to constant regulatory changes, especially at the state by state level. 
• Fast-paced technology: With rapid technology growth in key fintech areas — such as artificial intelligence and blockchain — companies must remain agile to regulatory changes involving these topics as well. 
• Adherence to cross-border regulations: Most fintechs aim to expand their services across countries and continents, which means understanding and adhering to numerous — and sometimes conflicting — regulations. 
• Cost of compliance: From investing in regulation technology (RegTech) and security systems to putting together a compliance team, partnering with third-party vendors, and the constant regulatory changes, the cost of compliance can be a burden for fintech companies. This is especially true for startups.  
• Third-party risk management: Besides implementing company-wide compliance, fintechs must also ensure other businesses they partner with — such as independent sales organizations, agents, and card processors — are also compliant to avoid noncompliance by association.

Best Regulatory Practices to Maintain Fintech Compliance

Fintech companies can take various measures to counter these challenges and maintain compliance:

Proactive Planning for Regulatory Compliance

Fintech compliance requires a deep understanding of the regulations and putting certain measures in place beforehand to prevent noncompliance. Actions a fintech company can take to stay ahead of the compliance curve include:

• Staying updated and current on regulatory changes
• Implementing robust security measures to prevent data breaches
• Conducting regular compliance audits
• Encouraging timely compliance reporting
• Partnering with experts such as ethical hackers to identify and fix vulnerabilities 

Vigorous KYC and KYB Procedures

KYC and KYB regulations ensure the legitimacy of the funds moving through your system. This involves collecting and verifying a customer’s identifiable information, such as name, date of birth, government-issued identification, and biometric information. 

Fintech companies should also apply these verification rules to third-party vendors — such as banks and card processors — to assess their business and risk profile. 

Regular Employee Training on Compliance Issues

Regulatory training ensures employees understand their responsibilities, stay updated with the constant legal changes, and ultimately create a culture of compliance. 

An effective compliance training program for employees involves:

• Holding regular training sessions to reinforce the information as opposed to one-off training
• Starting with the basic and must-know regulations before diving deep
• Customizing training material according to the company’s departments
• Using interactive tools, such as quizzes and e-learning to enhance comprehension 

Investment in Quality Regulation Technology and IT Infrastructure

Regulation technology (RegTech) utilizes emerging technologies to help companies streamline and manage their compliance processes. A basic example is a generative AI program that identifies regulatory gaps and suggests updates to a fintech’s compliance policy. 

Investing in secure and scalable regulatory technologies enhances business efficiency while ensuring agility and adaptability toward constant legal changes. 

Establishment of a Compliance Team

In the highly regulated fintech industry, hiring or outsourcing a team of experts dedicated to regulatory issues allows you to focus on running the business while the team tackles compliance matters. Members of this team may include a chief compliance officer, analysts, legal advisors, and ethical hackers. Their roles are to stay up-to-date with regulatory changes, conduct regulatory audits, and test for security vulnerabilities. 

Regulatory Sandbox for Product Testing

A regulatory sandbox is an environment that allows companies to test new features, products, and business models in a controlled environment under regulatory supervision. Before releasing products, companies should test ideas in a regulatory sandbox to ensure compliance and informed decision-making.

How Global Legal Can Help

While fintech is not a new concept in the finance industry, technology and systems continue to evolve rapidly, keeping regulators and fintech companies on their toes. New legal complexities are also arising as the fintech landscape continues to shift. With so much at stake, it’s crucial for companies to partner with skilled fintech attorneys who understand how to navigate these laws at the state and federal levels.  

Global Legal is a leader in fintech law. With more than two decades of experience, we understand common legal challenges fintechs face and the solutions that work. Schedule a consultation today to learn how we can help your company wade through the murky waters of fintech compliance. 

Fintech Compliance Frequently Asked Questions