Proactive Fintech Compliance: How to Build a Strong Foundation for Growth
Key Takeaways:
- Starting compliance efforts early helps avoid rushed audits, reduces errors, and minimizes costs.
- Fintechs handling sensitive data must prioritize SOC 1, SOC 2, and PCI compliance to meet client and regulatory expectations.
- For international operations, ISO 27001 certification demonstrates a commitment to global information security standards.
- Engaging fractional or third-party compliance experts can be a cost-effective way to maintain regulatory adherence while scaling.
- A robust compliance framework enhances credibility, mitigates risks, and positions fintechs for sustainable growth in a competitive market.
Whether you are a PE-backed Series A start-up or a well-established global leader in your space, integrating a robust risk management and compliance program is essential to your success. These programs ensure you meet regulatory requirements, gain trust from potential clients, and remain competitive in an evolving market.
This is increasingly important as the regulatory expectations of your potential customer-base continue to grow. Your fintech’s business model and the services you offer to financial institutions will largely determine the specific compliance requirements and IT assurance reports you’ll need.
Why Proactive Compliance Planning is Essential
Starting your compliance efforts early ensures you efficiently meet your fintech’s obligations and stay ahead of deadlines. This allows you to avoid the pitfalls of last-minute, rushed audits that can lead to costly errors and duplicative work.
Proactive preparation also significantly lowers the cost of compliance by addressing potential issues before they cause delays or lead to additional expenses. This ultimately makes the compliance process smoother and more manageable.
Top 6 Compliance Activities for Fintechs
Below are key activities fintechs should plan for to support compliance and risk management efforts:
- SOC 1 Audit: If your platform handles fiat transactions that could affect a financial institution’s financial statements, you will likely need to undergo a SOC 1 audit. This audit focuses on testing financial controls to give assurance to your clients.
- SOC 2 Audit: Security and data protection are paramount for fintech compliance. Therefore, SOC 2 audits, which assess your internal security controls, will often be a requirement since you will be handling sensitive data for financial institutions. This is especially important as prospects will want assurance that their data is secure in your hands. A well-maintained SOC 2 compliance framework can effectively mitigate security risks and reduce the potential for costly breaches.
- Payment Card Industry (PCI) Report on Compliance: If your platform interacts with clients’ credit card data environments, meeting PCI compliance standards is mandatory to safeguard cardholder data. Failure to comply with PCI standards introduces serious IT risks, including data breaches and hefty fines, which can damage your reputation with financial institutions.
- ISO 27001 Certification: If you are operating internationally, SOC reports may not suffice since they are North American standards. Achieving ISO 27001 certification demonstrates a commitment to a global standard for information security management, showcasing that your organization takes IT security and data protection seriously, regardless of geography.
- Regulatory Compliance: Compliance with U.S. regulatory laws is complex and unavoidable when working with financial institutions. At a minimum, you will need to demonstrate compliance with the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations to address financial crime risk. Additionally, if your platform involves loan products, you’ll also need to comply with lending regulations, such as the Fair Lending Act.
- Model Validation: If your solution involves a modeling component, such as financial modeling, predictive analysis, or automated decisioning using machine learning or artificial intelligence (AI), financial institutions will likely require a third-party model validation. Conducting a model validation over your solution assures institutions that your models are accurately built, and the logic used to build your model is sound and reliable before onboarding them into their environments.
Why Fintechs Need a Compliance Officer for Growth & Risk Management
Having a designated compliance officer is critical in today’s complex financial services landscape. Compliance officers play a key role in ensuring that fintech companies navigate regulatory challenges, mitigate risks, and maintain the highest standards of data security. However, hiring a full-time, in-house compliance officer may not always be feasible, especially for early-stage or scaling fintechs.
For many fintech companies, engaging a fractional compliance resource or third-party provider offers a cost-effective solution to meet compliance requirements without the overhead of a full-time hire. These professionals bring specialized expertise and scalability, allowing fintechs to stay on top of evolving regulations while focusing on core business functions.
Why Partner With Wolf
In the highly regulated financial services sector, proactive compliance and risk management go beyond operational obligations – they serve as critical drivers of growth, resilience, and trust. Establishing a strong compliance framework not only safeguards your business from costly penalties but also enhances credibility with clients and regulators, opening doors to new opportunities.
Wolf & Company can support your fintech in building a robust compliance infrastructure by identifying risks, addressing gaps, and implementing controls that meet evolving regulatory standards. With our guidance, your organization can effectively manage compliance demands while positioning itself for sustainable growth in a competitive and highly regulated market.
To learn how we can support your fintech organization, please contact a member of our team today.
