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What is Fintech?

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what is fintech?

Risk and Regulatory Compliance in Fintech


FinTech is an innovative industry promising much more convenience and greater access to finance than traditional banking can provide. FinTech products and services are innovative and user-friendly, allowing instant transactions and multiple financial operations on the go.

 Their major advantage is providing all services online, without the need to go to a bank and submit documents or undergo personal verification. Thus, the FinTech market is on the rise due to the many benefits it gives, with more users adopting digital apps every day. 

However, even with the simplicity and convenience of a FinTech approach, one should keep financial management risks in mind. FinTech startups often fail because of a lack of experience in risk management and compliance with regulations.

 As a result, many projects don’t even start out because of regulatory violations, heavy fines, and their blockage by auditors. 

Regulatory awareness is a must if you want to launch a new FinTech product. Here we cover the basic issues of FinTech compliance and regulatory oversight of such projects to help you avoid the industry-specific underwater stones.  

Types of Risk in FinTech 


The first thing you need to think about is the multitude of risks specific to FinTechs. What issues do you need to consider and incorporate into the app’s design? As a rule, FinTech app development involves the following hazards. 

Financial risks. If the app’s insecurities are identified, you can suffer a considerable business challenge, such as a fine or a diminishing business capitalization. 

Reputational risks. If your app doesn’t deliver on its promise or reveals serious problems and bugs, the users will abandon you. As a result, your app won’t enjoy customer loyalty and trust, ending up with a market failure. 

Regulatory risks. Regulations mainly relate to handling sensitive customer data, proper identity verification, and the prevention of illegal financial activities. If your app has significant security loopholes and allows people to abuse it, the regulators are sure to find you or block the app altogether.

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Core Legislation to Comply With 


With so many risks affecting businesses and their inexperienced users, the governments of many countries have adopted a set of legal measures to regulate the activities of FinTechs. These measures address major security issues for clients and businesses alike, focusing on the intactness of user funds, the privacy of data, transaction transparency, and restrictions on illegal financial schemes. For virtual private networks, you can see personvernpanettet and privacidadenlared review VPN.

The U.S. legislative framework for FinTech regulation includes: 

  • AML regulations oversee the money laundering risks (Bank Secrecy Act and U.S. Patriot Act). 
  • Data protection laws (GLBA and Financial Modernization Act).
  • Crowdfunding platforms’ mandatory registration with SEC (the JOBS Act). 
  • Consumer credit reporting (FCRA). 
  • Regulations for lending/borrowing practices (TILA). 
  • ICO regulations (the Howey Test, Security Act, and Exchange Act). 
  • FinTech startups also need to seek licenses from the MSB, a money transmitter license, and BitLicense for legal operations in the territory of the USA. 
  • Companies planning their operations in Western Europe need to keep the following laws in mind: 
  • The GDPR for robust user data protection. 
  • Directions and Financial Action of the EU. 
  • The New Payment Service Directive. 
Besides, you need to consider an extensive list of industry-specific regulations associated with different markets. For instance, if you plan to launch a healthcare app, it should also comply with HIPAA, HITECH, and other regulations for health data management. 

Trading FinTech projects will be overseen more closely by organizations specializing in stock exchanges, financial markets, etc. Thus, rigorous knowledge of legislation in your professional field is instrumental for the frictionless and safe functioning of your new FinTech project. 

Who Oversees FinTech Activities? 


  • The U.S. regulatory structure for FinTechs in the USA includes the following organizations: 
  • OCC audits all FinTech businesses in terms of compliance with the regulatory framework. 
  • FinCEN collects data about FinTech market players to prevent financial crimes and schemes. 
  • FDIC specializes in digital bank regulation and activity oversight. 
  • SEC focuses on the activities on the trading platforms and checks the security compliance of trading apps. 
  • FTC is tasked with antitrust compliance and protects users against fraud, theft, or data breaches in FinTechs. 

How to Ensure Compliance? 


It’s typical to get lost and confused amid so many regulations in the FinTech market. So, we recommend hiring an experienced compliance expert to the team to set up all operations and ensure compliance in real-time. 

This solution will ensure comprehensive oversight of regulatory issues, risk assessment, and an in-depth understanding of the FinTech ecosystem. The expert should audit the app and offer suggestions for closing the compliance gaps before the actual launch of your product. 

Compliance Is Key 


As you can see, the FinTech industry is not as democratic and decentralized as it often claims to be. All digital banking and finance apps must meet rigorous compliance and risk measures to secure users’ funds and identity. 

Regulation is also vital to prevent the financing of terrorist activities and money laundering. Therefore, by building a robust regulatory infrastructure for your app, you increase user trust and avoid costly fines in the process of work. 

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