Signals 2023 Trends

How to Leverage Fintech Regulations and Standards

For Fintech leaders, mastering compliance is not merely a choice; it's an imperative. Investing effort in this complex terrain paves the way for sustainable growth, trust, and legal integrity. And since technology has simplified complying with all the burgeoning regulations, acing the rules becomes less demanding a task.

In this article, I will explain the basics of FinTech compliance and why you need it as a tech leader. You will find insights on the U.S. and Canadian regulations, how they work, why you need SOC I and II to innovate, and how to boost your compliance with the leading RegTech solutions in the market.

What is compliance

FinTech compliance is the robust set of rules, standards, and guidelines that financial technology companies must adhere to ensure they operate within the boundaries of the law and maintain ethical business practices. Think of it as your company's rulebook – a comprehensive guide that provides instructions on everything from customer data protection to fair lending practices is up to par.

This rulebook should be written based on the legal and regulatory frameworks established by governmental authorities and industry-specific bodies. Covering a wide range of areas, compliance in FinTech includes data security, anti-money laundering (AML), know-your-customer (KYC) procedures, consumer protection, and more.

Why fintechs need regulations

Compliance helps make sure FinTech is a fair and safe place for companies to operate in and for their customers to enjoy the best services. It’s essential to ensure the industry's integrity, protect consumers, and maintain the stability of financial systems. Regulations provide a structured framework within which FinTech companies can innovate and conduct business while upholding high ethical standards and legal requirements. By staying compliant with relevant regulations, you achieve the following:

  • Protect consumers by ensuring that your company provides fair and transparent services. This includes regulating interest rates, fees, and the use of customer data.
  • Help maintain the overall stability of the financial system by preventing excessive risk-taking and irresponsible lending practices, which can lead to financial crises.
  • Assist in combating financial crimes such as money laundering, terrorist financing, and fraud by imposing strict FinTech compliance requirements, like KYC and AML procedures.
  • Safeguard sensitive customer information, reducing the risk of data breaches by implementing robust data security measures.
  • Help keep financial markets fair and transparent, preventing market manipulation and insider trading.
  • Follow a standardized framework to simplify your business operation and expand across different regions.
  • Enhance your FinTech company's reputation, build customer trust, and attract investors and partners.
  • Foster innovation by providing a clear set of rules that encourage competition while playing it fair.
  • Help govern cross-border transactions and maintain consistency in regulatory approaches.
  • Get clear instructions on what is permissible and what is not, reducing the risk of legal disputes and sanctions.

Regulations can be country- and state-specific, as well as global. For instance, The USA has the California Consumer Privacy Act, which is currently followed by similar acts from several other states. Globally, there are organizations like The Financial Action Task Force (FATF), an intergovernmental G7-initiated entity that develops policies to fight money laundering and curb terrorism financing.

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Understanding SOC I and SOC II

In FinTech and the broader technology industries, SOC I ((Service Organization Control I) and SOC II are the must-adhere technology compliance standards. These two relate to the security and controls of service organizations. SOC I and SOC II help ensure that companies handling sensitive financial data or providing financial services follow best practices regarding security, availability, processing integrity, confidentiality, and privacy.

SOC I

SOC I reports assess the internal controls that may impact the financial reporting of the customers of a service organization. The audits are performed per the Statement on Standards for Attestation Engagements (SSAE) 18 and focus on the accuracy of financial reporting.

An exemplary SOC I report includes information about the service organization's control environment, control objectives, control activities, and system description. The report also assesses the design and operating effectiveness of the controls.

Use cases: These reports are common for financial services providers such as fund administrators, payment processors, and other organizations that handle financial transactions for their clients. 

SOC II

Unlike SOC I, zooming in on accuracy, SOC II reports focus on controls related to security, availability, processing integrity, confidentiality, and privacy of a service organization's systems and services. SOC II audits are conducted according to the AT Section 101 of the AICPA (American Institute of Certified Public Accountants) standards. 

A SOC II report includes the organization's control environment, control objectives, control activities, and details on how the controls address the security, availability, processing integrity, confidentiality, and privacy of customer data. It evaluates both the design and operating effectiveness of these controls.

Use cases: These reports are commonly associated with data centers, cloud service providers, and organizations that store and process sensitive customer data.


Service organizations that undergo SOC I and SOC II audits usually engage independent auditors to assess and report on the effectiveness of their internal controls. The resulting reports shed light for customers on the security and operational integrity of a service organization. Also, they help make informed decisions for other businesses about working with them. FinTech companies and financial institutions often request these reports to ensure that their service providers meet high standards for security and compliance.

Tech hints to keep up with regulations

  1. Leverage open banking

A major FinTech trend of 2023, open banking is also a vital tool for financial services companies to bolster compliance with regulations. 

  • By utilizing open banking APIs, fintechs can access customer data, facilitating efficient KYC and AML procedures. 
  • You can use this framework in regulatory reporting to enhance data security and privacy through consent management.
  • Transaction data your business obtains through open banking can empower risk assessment and support sound lending decisions, all while ensuring payment processing compliance. 
  • It’s a key to new partnerships: you can collaborate with traditional banks, positioning open banking as a linchpin in their compliance strategy.
  1. Craft a strong cybersecurity strategy

This set of rules and practices will help you keep your systems and customers safe, thus shielding your reputation. Your cybersecurity strategy should include regular security assessments and techniques like encryption (you can find more here). It’s also helpful to keep track of threats, such as ransomware, and regularly update your defenses. Make sure your team gets proper training, too.

  1. Automate compliance monitoring

By monitoring systems manually, you risk slipping into human error and spending thousands, if not millions, on fines and legal fees. More importantly, your reputation will become stained. With the regulatory landscape growing more complex, your best bet is automated compliance monitoring solutions. Tools like Compliance.ai or Thomson Reuters Regulatory Intelligence continuously scan your systems to identify vulnerabilities and compliance violations to ensure your organization meets industry standards. 

  1. Get a customizable RegTech solution matching your compliance program

Creating a comprehensive compliance program is fundamental to effectively navigating the complex world of fintech regulation. Your program should combine clear and thoroughly documented compliance policies and a system for ongoing monitoring and reporting. 

Tailoring your program to address the specific compliance requirements of your FinTech operations can be challenging, especially in ensuring this program aligns with the regulatory landscape. To simplify the task and achieve the best results, use highly customizable tools like ComplyAdvantage or VComply.

  1. Enhance your data privacy practices

Implement robust data privacy practices such as getting explicit consent for data collection and processing, protecting sensitive information with encryption, and regularly auditing data-handling processes. Engage in reliable security measures to safeguard your data from hackers and build customer trust.

I recently did a separate article on data protection, where you’ll find data security best practices and solutions from top providers.

  1. Boost your incident response readiness

Having a detailed incident response plan is essential. Your company’s response to cyberattacks, policy violations, and other nuisances should be well described. Define the measures to soften the impact and recover your business after an emergency, designate roles, and set instructions for communication. 

A well-thought response can minimize damage to your reputation, save customer trust, and ensure operational robustness. With a solid incident response plan, you’ll show your commitment and professionalism in handling challenging situations like data breaches. Tools like NICE Actimize or MetricStream can help you automate for effective incident response management in the financial sector.

  1. Leverage blockchain-based solutions

Blockchain-powered immutable audit trails ensure compliance data and records are secure, transparent, and tamper-proof. Also, you can utilize smart contracts, which are self-executing contracts encoded in the blockchain. They can automate some KYC/AML processes and enforce compliance policies.

Solutions like Antier Solutions’s KYC solution or Factom’s Harmony platform for blockchain-based audit trail can help your company benefit from blockchain technology in FinTech.

Canadian vs. US regulations

Companies providing financial services on either side of the border must understand the regulations and sentiments of each country. While necessary to comply with the law, this understanding will also help you do the right thing to converse more clients. For instance, the rarity of banking failures in Canada coupled with the stronger regulatory framework results in customers there having a higher level of trust for banks than in the U.S. Americans, on the other hand, remember the financial crisis of 2008-09, which undermined their confidence in the American banking system.

The information below will help you navigate the many agencies regulating the products and services fintechs offer. Understanding how local regulatory environments differ will help underpin the following business decisions. For example:

  • Consider the costs of expanding to new jurisdictions, where compliance requirements may vary significantly and require more resources from your side.
  • Additionally, the viability of a product in one region may not hold in another due to varying regulations, such as usury limits.

For instance, there is currently no Canadian national federal securities legislation or national securities regulator; instead, each Canadian province and territory has its own securities laws and securities regulator. These may be more or less uniform, thanks to the collaborative effort of the Canadian Securities Administrators (CSA). However, watch out for the differences; they still may be significant.

  • Litigation risks also vary. US regulators can file lawsuits in federal court, while Canadian regulators focus on supervision and regulation without prosecution powers. Harmonizing your approach during product development, regulatory scrutiny, or litigation can be invaluable.

Each country's regulatory landscape is nuanced, making expertise in one country beneficial when working with counterparts in another. Let’s take a closer look at regulations in the USA and Canada.

US Fintech regulations

While funding activity has declined in the U.S. this year, the country remains the largest market for FinTech in the first half of 2023. Lots of innovation is happening in the U.S., but to stay on top, you need to comply. Navigating FinTech compliance and regulatory best practices in the United States demands attention to several key factors. 

One of the first steps fintechs must take is registering with the Financial Conduct Authority (FCA). It’s a fundamental requirement for those operating in the UK. The FCA plays a pivotal role in regulating these businesses, ensuring their adherence to stringent financial rules and regulations. This oversight encompasses the enforcement of robust AML measures.

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If your fintech involves securities trading or investments, you may need to register with the Securities and Exchange Commission (SEC) or state securities regulators. 

The rule would require supervised nonbanks to register with the CFPB in case their contractual terms and conditions incorporate provisions aiming to limit certain consumer rights or to waive any constitutional, statutory, or common law legal protection, right, or defense.

Certain types of financial products you might offer may oblige you to comply with regulations of entities like:

  • The Consumer Financial Protection Bureau (CFPB) - ensures fair lending practices in the industry;
  • The Federal Deposit Insurance Corporation (FDIC) - busy with consumer protection and insurance of deposits;
  • The Office of the Comptroller of the Currency (OCC) - national bank charters, authorizing banks to conduct business on a nationwide basis;
  • The Securities Exchange Commission (SEC) - supervises funds, securities, investment advisers, broker-dealers, and digital asset exchanges;
  • The Federal Trade Commission (FTC) - consumer protection and enforcement of civil antitrust law;
  • The Commodities Futures Trading Commission (CFTC) - oversees futures trading markets and exchanges;
  • The Financial Crimes Enforcement Network (FinCEN) - ensures anti-money laundering;
  • The Financial Industry Regulatory Authority (FINRA) - supervised investment activities.

Apart from registration, companies must establish well-crafted AML policies and procedures. These protocols should be meticulously designed to deter the illicit use of funds by criminal elements and potential terrorists. The specific requirements naturally fluctuate based on the business's size and nature. However, all firms must maintain dynamic, risk-based AML policies, subject to regular review and updates.

Canadian Fintech regulations

While its banking system enjoys high customer trust, Canada is also a FinTech-friendly hub. Like the U.S., the country boasts diverse financial technology enterprises spanning all growth stages and operating nationwide. FinTech regulation also involves multiple authorities, not a single regulatory body, depending on your business's services. Provincial and territorial securities administrators are taking the lead in Canada’s regulatory terrain.

Entities offering banking, consumer credit, insurance, or capital-raising services must comply with sector-specific rules. General business regulations like privacy laws, anti-money laundering, and consumer protection also apply. The Retail Payments Activities Act (RPAA) introduced a new retail payment regulatory framework, enabling the Bank of Canada to supervise payment service providers (PSPs). Companies entering regulated services should explore potential regulatory exemptions, with securities regulators often open to granting exemptions for fintech firms. Let’s take a closer look at the entities you’ll engage with if starting a FinTech business in Canada.

  • The Canadian Securities Administrators (CSA) - an umbrella under which Canada’s provincial and territorial securities administrators govern securities dealers;
  • The Investment Industry Regulatory Organization of Canada (IIROC) - is responsible for the supervision and regulation of banks, insurance companies, and trust and loan companies;
  • The Canada Revenue Agency (CRA) - guidance on fintech-related matters;
  • The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) - anti-money laundering authority regulating certain FinTech products and services;
  • The Bank of Canada (BoC) - Canada’s central bank;
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Final details

As the FinTech world marches into uncharted territories, the compass of compliance becomes your trusted guide. When harnessed correctly, it's the cornerstone of trust, innovation, and a flourishing future. 

  • Compliance is the rulebook that Fintech companies follow, encompassing a wide range of areas from data security to AML procedures.
  • SOC I and SOC II compliance standards are critical components of FinTech compliance, focusing on the security and controls of service organizations and ensuring the integrity of systems and services.
  • You can leverage open banking, cybersecurity strategies, automation, customizable RegTech solutions, data privacy practices, and incident response readiness to comply and gain a competitive edge.
  • Aiming to operate in a particular country, you need to explore its regulatory landscape in detail, considering that laws and guidances may differ depending on its administrative-territorial units. 

For further guidance and tailored solutions in compliant FinTech software development, ask us at INSART. We're here to navigate this complex landscape with you. Let’s get on a quick call to ensure your software development gets on well with regulations.

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