Home Business Insights & Advice Four reasons why FinTechs must comply with regulations

Four reasons why FinTechs must comply with regulations

by John Saunders
30th May 22 3:48 pm

Businesses which operate within the financial technology industry – informally knowns as FinTechs – are often seen as rivals to banks, building societies and other financial institutions. By breaking new markets and offering innovative tools and services, these companies have the power to disrupt the status quo and provide a better experience for their customers.

However, as with any emerging new segment of the corporate and commercial world, there are logistical and legislative hurdles which must first be overcome. As these businesses expand and mature, it’s prudent for them to pay greater attention to regulations for FinTechs, since these are instrumental in their continued success and even survival. Here’s why.

Fraud prevention

One of the biggest regulations for FinTechs is Know Your Customer (KYC) protocols, which involve verifying that customers are who they say they are. This is absolutely crucial in minimizing fraud and protecting your company from the economic and reputational fallout that can follow if you do fall victim to such a scheme. These checks must be performed robustly at the onboarding stage and repeatedly throughout your relationship with the client to ensure that no abuse can take place.


One of the biggest deterrents to achieving regulatory compliance for many small- and medium-sized enterprises (SMEs) operating in the FinTech sphere is the upfront costs of doing so. According to recent research, the average cost of achieving and maintain compliance for a FinTech company is $5.57 million. But while that might seem like an astronomical sum, it pales in comparison to the price of non-compliance, which, at $14.82 million, is more than twice the outlay. Avoid penalties by keeping your papers in order.


Aside from the crippling fiscal damage that a FinTech regulations breach can cause, that kind of event can also irreversibly damage a company’s standing in the eyes of its consumers. That’s arguably even more concerning than the millions of dollars’ worth of fines that non-compliance can incur, since a business which is not viewed as trustworthy may never recover. On the other hand, those with robust FinTech regulation protocols and procedures in place can enjoy a high standing in the eyes of their target market, earning them more custom in the long run.

Audit readiness

The news that a company is being audited is daunting in any sector, but it’s especially fearsome in the FinTech industry. If the governing authority in your jurisdiction decides that your processing and operational methods are deserving of closer scrutiny, you better hope that all is above board. By following FinTech regulations to the tee and keeping a close record of having done so, you’ll avoid the stress and strain that an impromptu audit can place upon you and your staff, standing you in good stead to progress in the future.

Compliance with regulations is a legal requirement in any industry, but it takes on even more significance in one as new, innovative and unpredictable as FinTech. For the reasons outlined above, it’s imperative you ensure your firm dots the I’s and crosses the T’s when it comes to meeting its legal obligations.

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