In a time of evolving regulations and changing trends, the need for FinTechs to invest in compliance is growing ever stronger.
In a recent post by Currencycloud, the company highlighted the dangers of FinTechs being non-compliant and why FinTechs should consider investing in compliance.
The company said, “Non-compliance can quickly lead to huge fines, jail time, and reputational damage. US Fintechs have seen an increase in the scrutiny of their compliance status in 2022. If you’re one of the 73% of Fintechs without a dedicated compliance officer, now is the time to get an idea of what you need to know.”
First of all, it is key for FinTechs to know the compliance laws. There is often a vast range of compliance laws on both state and federal levels that every FinTech that operates in the US needs to be aware of and follow. These laws ensure that financial transactions proceed smoothly, with safety and security at every stage. They should be a non-negotiable element of every Fintech’s business.
Currencycloud noted, “Fintechs must stay up to date and compliant with a whole range of regulations that cover data privacy, security, and chartered banking laws. To add even more complexity, these laws vary from state to state.
“Each state can have several industry regulators as well as the State Attorney General’s Offices who oversee often overlapping portions of the Fintech industry. Banking, mortgages, loans, credit cards, insurance, money transfer, checks, consumer protection and privacy are all subject to an individual state’s regulatory authority.”
In addition to knowing compliance laws, businesses must also know about AML. In the US, AML compliance is both federal and state-regulated, so FinTechs need to be up to speed with AML regulations. “Having the right program in place to detect and eliminate money laundering is essential,” said the firm.
It is also important for FinTechs to remember there are penalties for non-compliance.
Currencycloud underlined, “State regulators and State Attorney Generals are often very active in going after smaller companies like Fintechs. Fintechs, as financial businesses, need to have a strong AML program embedded in their strategy from Day One.
“There are non-compliance penalties that can’t be wiped away with a checkbook. Reputational damage can last for years and negatively impact a Fintech’s ability to attract investors and consumers.”
It is equally as important for FinTechs to know about KYC. Fintechs are subject to increasingly punitive fines in cases of KYC negligence. That’s why it’s vital that all Fintechs apply due diligence and have KYC compliance processes that are embedded and impeccable.
Currencycloud said, “Due diligence must be applied when onboarding customers in order to root out fraud, close off possible terrorist funding, and help mitigate AML risks. Fintechs are expected to adopt and comply with US laws and regulations, which includes the Bank Secrecy Act (BSA), Office of Foreign Assets Control (OFAC), and individual state requirements. Fintechs have a duty to maintain AML-related procedures and controls designed to comply with these laws and regulations, to combat financial crime.”
Another important area for FinTechs to consider is in applying data privacy. Consumer protection and privacy laws are both federally and state regulated, so Fintechs need to know how and if they apply to their business.
The firm said, “People will only place their finances in an institution they trust, and Fintechs are only as strong as the trust they inspire. People expect that their personal data is secure from fraudsters at all times. Fintechs, as a bridge between customers and traditional banks, must ensure there are no data leaks which could impact their customers and breach a bank’s security measures. If this happens, fines, lawsuits, financial losses and reputational damage quickly follow.
“Much personal data is lost and compromised through phishing (sending emails posing as a reputable company to get personal data from individuals). It’s the cause of 60% of companies’ lost data, with fraudsters accessing credentials and personal data like passwords, usernames and addresses.”
Currencycloud underlined that aside from all the legal aspects of compliance, FinTechs should also embrace awareness and education around the laws of compliance, create a compliance plan, have compliance policies and procedures in place and ensure the compliance is working whilst building relationships with partners and regulators to keep on-top of your compliance strategy.
Find the full post here.
Paysend, a UK-based FinTech, recently teamed with Currencycloud to expand the capabilities of its business solution.