Fintech – this buzzword has transformed financial services in ways that were previously unimaginable. In this world, compliance is not just a regulatory obligation. It is a required element to maintain trust and sustainability. Fintech companies are innovating and disrupting traditional financial services left, right and center.
But they also face a complex web of regulations to protect consumers, maintain financial stability and ensure the market’s integrity. Key statistics from authoritative sources indicate that 93% of fintechs are struggling with compliance, over 60% are paying fines exceeding $250K, and 55% have cited lack of automation as a major barrier.
Let’s take a deep dive into key compliance requirements, best practices and regulatory challenges that fintech companies face in the world today.
Additionally, we will also take a look at some of the practical steps that fintech companies can take to manage risks. This is particularly related to Anti-Money Laundering (AML), Know Your Customer (KYC), data security, and regulatory reporting.
The Compliance Imperative in Fintech
Compliance is almost everything in Fintech. Without it, there is no building trust, no operational longevity, and no customer confidence. Regulators worldwide have become quite attracted to financial services which have advanced technology rapidly integrated with them. These regulators are keen on protecting consumers and maintaining market integrity.
Regulations differ from country to country. This makes it essential to adopt fintech localization services to align with local regulatory standards. A failure to comply can attract significant penalties. It can cause not only operational disruptions but also permanent reputational harm. The best example would be that of Wise, the London-based Fintech Company. It was recently rebuked by the National Bank of Belgium over inadequate anti-money laundering controls. It was compelled to implement a formal remediation plan.
Key Compliance Areas in Fintech
Let’s take a look at some of the key areas of compliance in the fintech industry today.
Data Security and Privacy
We live in an era where data security is a priority. Nowhere is this more a priority than in the fintech sector. Thus, data protection regulations around the world, such as the General Data Protection Regulation (GDPR) in Europe, have to be complied with. Implementing a high degree of data security ensures compliance and increases customer trust.
For instance, Fintech startup Revolut, faced challenges while becoming the “superapp” due to regulatory hurdles and the risk of creating a bloated product with multiple services. Despite all this, Revolut is steadfast in its mission. It is launching new products and services to compete with large global banks, while maintaining compliance and consumer trust.
Know Your Customer (KYC)
KYC is essential for identifying potential risks and verifying customer identities. A good KYC program involves collecting and verifying customer information, monitoring transactions and maintaining records. Wise’s experience is a product of inadequate KYC procedures. Regulators in 2022 found that Wise lacked proof of address for a lot of its customers. This led to the formal remediation plan that required the company to contact customers for address verification and freeze accounts if unprovided.
Anti-Money Laundering (AML) and Counter-Terrorist Financing
AML and CTF measures need to be implemented by Fintech companies. This is mainly to prevent their platforms from being misused for illicit activities. This includes having comprehensive policies, conducting regular risk assessments, and ensuring that effective transaction monitoring systems are in place.
For instance, let’s take a look at the case of SoLo Funds. This is a peer-to-peer lending platform that serves as a reminder of the importance of strong AML controls. It was sued by the Consumer Financial Protection Bureau (CFPB) in 2024. This was due to its lending model, which involved deceptive practices and exorbitant fees.
Regulatory Reporting
Another element required to maintain transparency and compliance in fintech is accurate and timely reporting to regulatory bodies. This includes mandatory disclosures such as transaction reports and suspicious activity reports. To reduce errors and ensure compliance, companies can automate these processes.
The importance of regulatory compliance was under the spotlight due to the case of Flutterwave. The Nigerian fintech company had its accounts frozen by a Kenyan High Court in 2022 following allegations by Kenya’s Assets Recovery Agency (ARA). The account, which contained over 6.2 billion Kenyan shillings was linked to money laundering and credit card fraud. While the ARA withdrew the case later on, the incident shed light on the need for serious regulatory reporting and compliance.
Global Fintech Regulatory Compliance
Fintech regulations vary across nations. This makes it imperative for companies to understand and act according to local laws.
The United States
The U.S. has multiple federal and state regulators in charge of overseeing the fintech market. Fintech entities are mandated to comply with the Bank Secrecy Act (BSA), AML laws, and consumer protection regulations.
As mentioned earlier, SoLo Funds faced legal challenges over allegedly misleading marketing about its business model.
European Union
The EU’s regulatory framework includes regulatory laws like the Revised Payment Services Directive (PSD2), GDPR, and the Fifth Anti-Money Laundering Directive (5AMLD). These regulations aim to enhance competition, innovation and security in the financial sector. However, there are challenges in this aspect as well.
Asia Pacific Region
Fintech-friendly regulatory environments can be seen in countries like Singapore and Australia. They promote innovation while ensuring consumer protection. However, the Revolut case highlights the problem of regulatory scrutiny, when it wanted to expand into the Australian market.
Best Practices for Compliance
Develop a comprehensive compliance program
It is critical for fintech companies to implement robust policies and procedures to efficiently address all relevant regulatory requirements. This comprises of Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) measures, data protection protocols as well as customer onboarding processes.
For example, Revolut, a well-known fintech company, has faced difficulties in its compliance journey. In spite of obtaining a UK banking license after a long regulatory struggle, the company has encountered problems related to AML compliance and customer support. This emphasizes the significance of a comprehensive compliance framework.
Conduct regular training and awareness programs
In order to ensure that the employees remain well-informed about compliance obligations, regular training sessions are necessary. It will enable them to recognize and respond to potential compliance issues. The experience of Revolut with customer support challenges highlights the importance of equipping employees with the knowledge required for handling compliance related matters efficiently.
Gives importance to customer protection
Introducing robust measures to protect customers from becoming victims of fraud and ensuring swift resolution of issues are the necessary components of a compliance strategy. Revolut’s efforts to reduce Authorized Push Payment (APP) fraud by 35% show the significance of prioritizing customer protection in compliance programs.
Apply advanced technology solutions
The use of advanced compliance solutions such as AI-powered automation and translation tools can enhance compliance efforts in different regions across the world. Regulatory technology (RegTech) solutions, such as transaction monitoring systems and identity monitoring tools can help in real time compliance monitoring. For instance, Revolut has invested in expanding its financial crime headcount and improving its systems to combat fraud. This shows the necessity of technological solutions in maintaining compliance.
Engage in continuous risk assessment
Regularly evaluating and alleviating risks associated with compliance is crucial. By applying continuous risk assessment processes, fintech companies can identify vulnerabilities and implement correct measures properly. Revolut has improved its financial crime team for addressing fraud complaints. This proactive approach demonstrates the importance of ongoing risk assessment in maintaining compliance.
Customize compliance programs for global expansion
Since fintech companies are expanding globally, it is important that they adapt compliance programs in order to align with the local regulations. Revolut’s strategic move to obtain UK banking license and expand into the US market demonstrates the significance of customizing compliance efforts for meeting diverse regulatory requirements across different jurisdictions.
Promote transparent communication with regulators
Maintaining open and transparent communication with regulatory bodies builds trust and ensures that fintech companies remain informed about the evolving compliance requirements. The legal challenges of Revolut against the UK’s Payment Systems Regulator (PSR) about proposed caps on international transaction fees emphasizes the complexity of regulatory relationships and the need for clear communication.
What Role Do Translation and Localization Play in Compliance?
In order to navigate the global regulatory landscape, you will not only have to understand the local laws but also be fluent in different languages. As a translation and localization company, we offer comprehensive language services and technology solutions to help fintech companies overcome these challenges.
Related article: All You Need to Know About Fintech Translation
Accurate translation of compliance documents
We make sure that all compliance related documents like policies and procedures are translated in an accurate manner. This is crucial for maintaining consistency and understanding across multinational teams.
Multilingual customer support
If customer support is provided in numerous languages, it helps to build trust and ensures that compliance related inquiries are handled in an efficient manner. Our multilingual support solutions make it possible for fintech companies to cater to a global customer base while complying with local regulations.
Localizing training programs
Tailoring compliance training programs to reflect local cultural nuances and regulatory requirements improves employee engagement and understanding. We develop localized training materials that appeal to diverse audiences and ensure effective knowledge transfer.
Cultural consultation for market entry
Entering new markets requires a thorough understanding of local customs, consumer behavior, and regulatory expectations. Our cultural consulting services enable fintech companies to successfully navigate new environments.
In the fintech industry, compliance acts as a foundation of reliability and operational success. By applying comprehensive training programs, using advanced technologies and promoting transparent communication with regulators, fintech companies can explore the complex regulatory landscape effectively.
Moreover, partnering with a translation and localization expert ensures that compliance efforts are culturally and linguistically appropriate for each market. This solidifies the credibility of the company.
Conclusion
Working in the fintech industry has become more challenging than ever, thanks to regulatory hurdles which are constantly changing. This makes it crucial for fintech companies to adopt the right strategies, such as effective fintech translation and localization services.
Luckily, we offer customized translation and localized solutions for fintech companies seeking to improve their compliance strategies. Contact us today for a free consultation and learn how our expertise can support your compliance and expansion efforts.
