Importance of Fintech Compliance for Fintech Businesses

Importance of Fintech Compliance for Fintech Businesses

With the increasing landscape of Fintech Companies, it is increasingly vital that fintech compliance is fulfilled to sustain the success of the fintech business services. Starting from the early stage of launching a fintech company, fintech compliance helps the company protect and combat potential legal risks and penalties and enhance trust with customers; therefore, an organization with fintech compliance increases the growth of fintech business operations. Meanwhile, a company that fails to meet fintech compliance faces several challenges that impact business activity and damage the reputation of fintech organizations.

Fintech compliance is one of the essential aspects of the financial industry. With the continuous growth of fintech companies and their evolution, the need for fintech compliance has come hand in hand to safeguard from any kinds of discrepancies. Initially, in the early age of the fintech industry, it was under-regulated in many countries. However, regulations have been introduced to meet the unique requirements of fintech compliance for seamless functioning of fintech business operations.

However, due to the spread of fintech companies across multiple jurisdictions and subject to the same stringent regulations framework as traditional financial companies, this fintech compliance can be challenging, especially for banks and credit unions who nowadays partner with the fintech industry for innovative technology for their business operations.

What do you understand by Fintech compliance?

Fintech compliance is a regulatory framework that every company seeking or running a fintech company must adhere to for the seamless functioning of the fintech business operations. This fintech compliance includes laws and regulations according to the industry standards for navigating the potential risks connected to data privacy, cyber security, and consumer protection to safeguard the interests of the customers. Fintech businesses complying with the Fintech compliance help them to tailor various business operations such as helping them to demonstrate their commitment towards securing data storage and uses, building trust with the customers by assuring their capability to handle sensitive information and protecting themselves from regulatory fines and audits.

Fintech Compliance Checklist

Given below are some of the important checklists of a Fintech Compliance

1. Legal & Regulatory Requirements

The rapid growth of fintech companies is subject to various fintech compliance and regulatory frameworks to maintain the smooth functioning of fintech business operations. GDPR is one of the major regulations that the fintech industry must comply with. However, such fintech compliance varies from place to place. Fintech compliance will ensure that the company is safeguarded from heavy penalties and legal liabilities.

2. Data privacy

Data privacy is another important element for the fintech industry; non-compliance with data privacy can lead fintech companies to face legal liabilities and fines. It is therefore important for every fintech company to implement effective data security measures to prevent data breaches and various other fintech compliance and regulatory measures. 

3. Cyberattacks

With the advancement of technology, both traditional banks and fintech companies are front to the cyberattacks. Thus, fintech companies must implement robust security measures to safeguard against potential data breaches and protect the interests of customers in order to secure financial transactions. Some of the laws related to fintech companies are PCI DSS, which is part of fintech compliance for seamless financial transactions.

4. Maintaining trust

Fintech Compliance and Regulatory Framework are some of the major key factors in building and receiving trust from customers and investors. To maintain the reputational image of a company, fintech compliance must be implemented to maintain a customer’s trust and to attract new customers.

What are the Key Areas of fintech Compliance?

With the generation of digital transformation, the financial sector and financial technology like Fintech have emerged as game-changing in this changing trend. However, with this comes the fintech company regulation framework to overcome the fintech legal issues and challenges connected to fintech legislation. When it comes to fintech compliance and fintech company regulation, there are several important key areas or points that every company dealing with fintech business must take care of. These key areas include:

1. AML (Anti-money laundering) and KYC Know Your Customer)

Both AML and KYC are critical key areas that a fintech company must take care of to operate a seamless business operation and prevent the company from engaging in illegal activities and terrorist funding. Meanwhile, fintech companies are expected to implement both AML and KYC to determine and identify the customer’s details, ensuring they are safe and that no illegal activities are connected to them. However, non-compliance with AML and KYC may result in fintech companies facing legal liabilities and reputational damage.

2. Data Privacy and Security

Fintech companies unlike any other traditional financial service are often exposed to sensitive data of the customer enrolled in the digital format, thus data privacy and security are of paramount importance. Laws connected to such data privacy are GDPR (General Data Protection Regulation) in the European Union and GLBA (Gramm-Leach-Bliley Act in the United States that fintech companies must adhere to. It is also recommended that fintech companies implement stringent data encryption and access control measures to protect the customer’s information.

3. Operational Compliance

Operational compliance in Fintech Company means licensing, registration, risk management, internal Audit and various other employee training and awareness. Therefore, fintech companies must ensure that they have an efficient compliance program to meet all the aspects of the fintech company regulations framework for preventing any legal liabilities and discrepancies.

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4. Reporting and documentation

A fintech company must also comply with the compliance requirement of reporting and documentation of the company’s business operations by reporting suspicious activity when detected before the concerned authority. A regular internal audit must be conducted by a fintech company to detect areas of non-compliance and devise remedial robust strategies.

Fintech Compliance Best Practices

Given below are the Best Practices for maintaining Fintech Compliances:

1. Stay Updated on Regulatory Requirements

A fintech company must keep itself informed about the constantly changing regulations and fintech compliance frameworks, this will help the companies to maintain the industry standards laws, and regulations. However, this can be achieved by the fintech company by joining industry associations, attending conferences, and regularly keeping updated with the fintech compliance regulatory frameworks.

2. Establishment of Compliance Program

A fintech company, with the help of professionals, shall establish a fintech compliance program focusing on fintech industry policies, procedures, and controls to ensure the seamless working of fintech business operations. These programs and awareness of fintech compliance should be comprehensive and subsequently safeguard businesses from all the potential risks.

3. Conduct Risk Assessment

A fintech company with the help of expert professionals in risk management, must conduct a risk assessment to determine the potential risk areas and develop a strategy to combat such potential risks. Meanwhile, such assessment of a risk has to be conducted by a company ongoing basis considering the evolving nature of the business and fintech compliance environment.

4. Implementation of Strong Data privacy and security practices

Every fintech company needs to implement the best practices for protecting customers’ data privacy and security. Data encryption, secure storage, and access controls are some of the common initiatives taken by companies to protect customers’ information and enhance customer experience.

5. Training of employees on FinTech Compliance

A program on training has to be introduced by fintech companies to keep the employees aware and updated with the fintech compliance and regulation framework. Such training will help the company to rely better on employees for a seamless function of the business operations.

6. Conduct Internal Audits

Internal Audit plays a very important role for every company to know their business frameworks, and development and also to address the gaps. Thus, a regular internal audit of a fintech company helps them to detect the areas of non-compliance and to develop a strategy to overcome such loopholes. For an effective audit, it is recommended to hire a professional third-party audit expert to ensure its objectivity.

7. Partner with Compliance Experts

One can also partner with the compliance expert team of professionals or invest in an automated compliance platform for tailoring the complex fintech compliance regulatory landscapes. Such partnerships and platforms make it easy for fintech companies to regulate with fintech compliance.

Latest Fintech compliance and regulatory Changes in India

In recent years, the fintech company has taken a remarkable step in its expansion throughout the states of India by setting up innovative startups and players that are revolutionizing the functioning of the fintech business operations. This has surged the adoption of a fintech company across India, resulting in numerous benefits to consumers and ensuring accessible financial services are both efficient and affordable. However, with the increasing number of fintech companies, there is a need for robust fintech compliance and regulatory frameworks.

The government of India, to ensure fintech legislation, has taken proactive measures to regulate fintech companies, such as payment systems, digital lending, insurance technology, etc. However, the government of India has a balance between fintech compliance and innovation to create financial well-being in the Indian economy. However, this approach has not only protected the consumers but also fostered the Indian fintech company to be healthy and sustainable, contributing to the nation’s economic growth. Some of the Fintech compliance and regulatory changes made by the government of India are:

Sandbox Regulatory Framework

SEBI, or the Securities and Exchange Board of India 2020, has introduced a sandbox regulatory framework for promoting innovation in the securities market.

Draft Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

The objective behind this bill is to create a regulatory framework for a digital currency facility issued by the Rbi or Reserve Bank of India and to prevent all the private cryptocurrencies in India.

Digital Personal Data Protection Bill, 2022

This bill will create a framework for the protection of personal data collected from customers.

Guidelines on Digital lending

RBI, or Reserve Bank of India 2022, has issued guidelines on digital lending to protect consumers from predatory lending practices.

Master directions on Credit card and debit card

In 2022, RBI revised the master circular direction on credit card and debit issuance and conduct to strengthen the consumer protection and fair practice code in the services of credit card and debit card companies.

Payment and Settlement Systems Act (Amendment) Bill,2023

With the introduction of this bill, RBI will address more powers to regulate the payment systems and prevent fraud.

However, in addition to such fintech compliance and regulatory changes, both SEBI and RBI have taken many more initiatives to promote innovation and consumer protection.

Benefits of the Fintech Industry

Innovation driven by fintech technology has widened the options for customers for financial services. Some of the major benefits of Fintech Industries are as follows:

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1. Gender equality and Access gaps in Financial Services

During the Covid-19 pandemic, fintech companies have helped to overcome obstacles caused by limits on the in-person mobility of women and loss of jobs. However, Fintech financial services have made it easier and accessible for women to sign up accounts, complete transactions and obtain credit cards which was indeed difficult before the fintech industry came into the picture.

2. Extensive Coverage

Unlike a traditional banking business operation, a fintech company has extensively covered areas which were not accessible through traditional banking methods. Nowadays, most private and public banks have implemented their fintech banking operations due to their ability to cover extensive areas. Therefore, the banking industry has started to see Fintech as a valuable partner in their banking business to reach extensive locations and connect with customers all across the jurisdictions.

3. Simplifies Processes

Fintech financial services have also made banking services easier and more accessible by reducing the layers of the operation procedures and enhancing the customer’s experience. Many fintech companies provide insurance services and other banking products that are completely online, offering a wide range of banking or insurance products.

4. Social change

The fintech industry has also brought a huge change and impact in the upliftment of the socially backward sections of society, who earlier were not eligible to obtain funds from traditional banks. Developing countries like India have hugely benefitted from this industry by enabling payment services across the nations.

5. Crowdfunding

Many fintech companies have also helped small businesses, entrepreneurs, charities, and artists receive or obtain support from the public without raising money from conventional investors.

Importance of Fintech Compliance in Businesses

Fintech compliance is important due to the rapid growth of Fintech companies and the potential risks associated with it. The list of why fintech compliance is important is given below.

1. Fintech compliance and regulatory framework help fintech companies to address expanding risks towards consumers, businesses, and financial stability. Some of the examples of these risks are connected to data privacy, security, and money laundering.

2. With fintech compliance, a company can combat the potential risks as they establish new policies and guidelines for regulating the functioning of fintech companies. For example, a fintech company must keep updated with AML measures to protect itself from money laundering activities and various other illegal activities.

3. Fintech companies must ensure that they fulfil the fintech compliance and regulatory framework for safeguarding the fintech business environment for efficient customer experience and effective risk management.

What are the Challenges of Fintech Companies?

While fintech companies provide numerous opportunities to enhance the customer experience in banking services, they also face several challenges that are required to be monitored and resolved to streamline the growth and development of the fintech industry. Given below are some of the common challenges that are faced by the fintech companies are:

1. Regulatory compliance

Fintech companies are highly regulated under stringent laws and regulations; thus, complying with such a complex regulatory framework is a huge challenge for any fintech company to overcome. Such fintech compliance with AML, KYC, and data protection laws is indeed time-consuming and costly.

2. Data Security and Privacy

Fintech companies are often engaged in dealing with sensitive customer data when operating their day-to-day business, making them more prone to cyber-attacks. Thus, it is quite challenging for a fintech company to implement a robust data security infrastructure.

3. Building Trust with Customer

A fintech company needs to build and achieve trust from the customer in this digital realm of banking services. Meanwhile, the fintech industry has to invest in education and awareness programs for customer knowledge and understanding.

4. Legacy Systems Integration

It is indeed challenging for a fintech company to align with the traditional banking operations, since they used an outdated technology in their day-to-day business operation thus making it difficult for a fintech company to ensure a compatibility with such traditional banking players.

5. Scalability and Infrastructure

With the rapid growth of fintech companies, it is often seen that a fintech industry faces difficulties in scalability and infrastructure for meeting this high-volume demand for fintech services. Therefore, a fintech company has to invest in building an infrastructure like cloud computing to meet this growth with uninterrupted services.

6. Financial Literacy and Inclusion

Though the advancement of technology has streamlined financial services, financial literacy is still challenging, particularly for those connected with lending and investment financial services.

7. Market fragmentation and competition

In recent years, the fintech industry has rapidly grown, establishing extensive competition in the market; thus, standing out of this crowd of competition is another major challenge for any fintech company.

8. Economic and Regulatory uncertainty

The regulatory framework of the fintech company keeps on evolving, thus it is difficult for a fintech company to adapt in this ever-evolving economic and regulatory environment.

9. Access to funding and capital

Obtaining funds from investors is helpful for any startup company like a fintech startups to fuel their growth and business innovations. However, it is challenging for any new companies in their early stage to attract any investors.

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10. Ethical and Responsible use of technology

With the speedy growth of fintech companies across the globe, it is the responsibility of fintech companies to operate businesses ethically by not misusing credit scoring, artificial intelligence, algorithm biases, etc.

How to overcome fintech compliance Challenges

Fintech offers customers innovative solutions in the financial sector. However, fintech companies also face several regulatory challenges in this rapidly changing economy across the globe, thus requiring fintech compliance legislation with various laws and regulations to meet the challenges and ensure the smooth operation of the businesses. To overcome such challenges, a fintech company must implement the given below lists:

Leverage technology

It is recommended that fintech companies implement automatic technologies that are available in the market to streamline their fintech compliance and regulation frameworks, such as data collection, verification, analysis, reporting, and monitoring activities. For example, a fintech company with the innovation of AI or artificial intelligence may use it in their business operation to perform various tasks such as identifying customers, managing risk, performing transaction monitoring, and performing various other anomaly detections. In this way, technology can reduce human errors and result in cost-effective and enhanced fintech compliance and regulation frameworks.

Engagement with Regulators

Fintech companies may actively participate or engage with concerned regulators to gain a better understanding of the requirements for a standard for running a seamless business by seeking guidance and obtaining feedback. For example, fintech companies may participate in various regulatory sandboxes, innovation hubs, or consultations with fintech legal advice from expert professionals, who will help them test their products and services in a controlled environment. Thus, fintech companies’ engagement with regulators can assist them in building trust and clarity with customers and also influence policy making.

Partner with Regulated Entities

It is also recommended that fintech companies enter into a partnership with regulated entities like banks, insurers, or brokers in order to leverage their existing licenses, infrastructure and expertise. For example, fintech companies may use APIs of regulated entities to have access to their customer’s profiles, payment systems, or distribution systems. However, this partnership of fintech companies with regulated entities can help fintech companies overcome the burden of complex compliances, expand market reach, and enhance customer experiences.


The fintech company is a dynamic industry that has enhanced the financial industry with the innovation of technologies providing great opportunities and growth. This means there are several legal requirements that a fintech company has to comply with to stay relevant in the market, such as fintech competition and regulatory framework for a seamless operation of the fintech business and the avoidance of any penalties and legal liabilities. Meanwhile, fintech companies are a dynamic and disruptive sector that offers great opportunities for building innovations and growth in the banking industry. However, fintech companies also face several challenges while regulating the compliance framework. Overcome these challenges with the help of expert professionals in fintech legal advice, streamlining the fintech business operations.


  1. What do you understand about fintech compliance?

    Fintech compliance refers to the laws and regulations that a fintech company must implement to ensure that their fintech business operations are operating in alignment with the applicable laws and regulations as per the industry standards, such as management of data privacy, cyber security, and consumer protection risk. 

  2. What are the areas of compliance that a fintech company should consider?

    The areas of fintech compliance that a company should consider are GDPR (General Data Protection Regulation), Data Security Compliance, and PCI DSS.

  3. What are the 4 lists of fintech companies?

    The 4 lists of fintech companies are fintech compliance and regulations, cyber security, financial and business operations, and reputational damage. However, such risk has to be tailored diligently with the robust fintech compliance program.

  4. Who regulates the Fintech Industry in India?

    In India, the Fintech industry is regulated by RBI (Reserve Bank of India), the Insurance Regulatory and Development Authority, and the Securities and Exchange Board of India.

  5. What is the importance of fintech companies in India?

    Fintech companies have revolutionized the banking industry by creating seamless business operations with easier access and reaching a wide range of customers that were not possible before with traditional banks.

  6. What are the benefits of Fintech to financial sectors in India?

    The most common benefits to financial sectors in India are technology advancement, cost-effective, digital payments revolution, quick and easy services, and enhanced customer experience.

  7. What are the objectives of fintech companies?

    The primary objective of fintech companies is to make banking services quicker and easier, making them more accessible to a wide range of populations. For example, economically weaker sections of society are not eligible for financial services, unlike traditional banks.

  8. How is Fintech changing the financial industry?

    The fintech industry is changing the financial industry by introducing technology in banking operations to ensure a wide range of customers with easy and quick financial services.

  9. Do banks use Fintech?

    Yes, banks are using a fintech solution in their day-to-day banking operations to streamline the banking operation capabilities, making it a digital-friendly service.

  10. What are the disadvantages of Fintech?

    The major disadvantage of a fintech company is that the company has to keep monitoring the regulatory requirements to stay updated with the fintech compliance and regulation framework.

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