Your 8-Step Roadmap to Fintech Compliance

What Is Fintech Regulatory Compliance?

Regulatory compliance in the fintech sector refers to the policies put in place governing the safe collection, storage, and use of sensitive customer data within fintech applications, online platforms, and digital services.

These organizations are constantly evolving, pushing the envelope where digital progress is concerned. While banks offer the benefit of in-person interaction at brick-and-mortar branches, fintech entities offer on-the-go, customer-centric services that reach clients worldwide and deliver financial services in seconds from a mobile device or laptop.

Because they are relatively newer to the market and highly innovative, fintech entities have historically operated beyond the confines of traditional financial compliance regulations. Operating for a long time under the mantra “We are not financial institutions,” they have since become subject to increased regulatory measures and legal accountability (similar to traditional banks and credit unions).

The result has been better cybersecurity and legal protection for fintech organizations, as well as greater security and peace of mind for their customers.

Key Regulations in Fintech Compliance

While fintech companies still face an evolving regulatory climate, certain fintech compliance standards are already in place.

Core Fintech Compliance Regulations

• GLBA: For fintechs concurrently operating as financial institutions (i.e., operating with banking licenses), the Gramm-Leach-Bliley Act (GLBA) Safeguards Rule, enforced by the Federal Trade Commission (FTC), applies. This requires institutions to create comprehensive cybersecurity programs with administrative, technical, and physical safeguards to protect customer data.
• SEC Cybersecurity Disclosure Rules: Adopted in 2023, the Security and Exchange Commission’s Cybersecurity Disclosure Rules apply to public fintechs (along with all public companies that file with the FEC). This mandates a maximum four-day window after discovery to determine whether a cybersecurity incident is classified as “material.”
• PCI DSS: Any fintech storing, processing, or transmitting cardholder data is subject to PCI DSS guidelines. These include universal MFA to access the Cardholder Data Environment (CDE), a 30-day timeline to patch critical vulnerabilities, updated password requirements, and more.
• DORA: Acting often as “critical ICT [Information and Communication Technology] third-party providers,” fintechs are subject to the EU’s Digital Operational Resilience Act (DORA). This mandates incident reporting, risk management measures, operational resilience testing, and more.
• CFPB Oversight: The Consumer Financial Protection Bureau (CFPB) recently increased its oversight to include “the largest nonbank companies offering digital funds transfer and payment wallet apps,” or major fintechs offering these services. This will subject those entities to increased legislation around privacy and surveillance, errors and fraud, and debanking practices.

U.S. Fintech Compliance Regulations (State-Specific)

In addition to federal compliance regulations, U.S. fintech organizations are also subject to statewide laws governing data usage and security practices.

• CCPA/CPRA: Fintechs operating in California must adhere to the California Consumer Privacy Act (CCPA) and its amendment, the California Privacy Rights Act (CPRA). Once ineligible under the “B2B exemption,” financial technology providers are now fully subject to CPRA mandates (since January 1, 2023) and must honor consumer privacy requests regarding their personal information. This includes deleting it, correcting it, refraining from collecting it, being transparent about its use, and more.
• NYDFS 500: If regulated in New York, fintechs must follow the New York Department of Financial Services (NYDFS) standards (23 NYCRR Part 500). This requires them to do such things as create a comprehensive cybersecurity program based on a risk assessment, designate a qualified CISO to oversee it, and implement technical security controls like vulnerability assessments and regular penetration tests.
• Massachusetts Data Security Regulation (201 CMR 17.00): This Massachusetts law applies to any entities handling the data of Massachusetts residents. Fintechs fitting this description must comply, developing a written information security program, encrypting data in transit and at rest, and monitoring systems regularly, among other things.

Your 8-Step Fintech Compliance Roadmap

Step 1: Identify applicable state and federal regulators (FTC, CFPB, NYDFS)

Find out who your fintech is subject to and for what reasons. For U.S. fintech organizations, the regulatory body to which you are beholden will be your source of current and upcoming cybersecurity compliance standards.

While fintech traditionally moves fast, it helps to slow down. Did you expand to a new market that now puts you under a different state’s jurisdiction? Check that state’s books. Do you now do business in Europe? DORA might apply.

Step 2: Build a GLBA-compliant information security program

Since all businesses providing financial products or services in the U.S. are subject to GLBA regulations, fintech organizations are under mandate to build a GLBA-compliant information security program. It must be written and include:

• Regular risk assessments
• Administrative, technical, and physical safeguards
• Access controls to limit access to sensitive customer data
• Secure software development practices
• User security awareness training
• And more

Step 3: Appoint a qualified individual or CISO

The “NYDFS 500” requires fintechs to appoint a CISO to oversee their established cybersecurity program. The FTC’s Final Rule requires a “qualified individual;” this does not have to be a CISO, though it can be. 

While other elements of the Final Rule are not applicable for organizations collecting data on less than 5,000 individuals, the requirement for a qualified individual still is. Such an individual must be able to:

• Oversee the information security program
• Run risk assessments
• Implement a written cybersecurity program
• Oversee service providers
• Train employees on adequate cybersecurity practices

Step 4: Implement strong access controls, encryption, and monitoring

Many state and federally mandated compliance policies have overlapping technical security requirements. Cover your bases by establishing the following:

• Strong Access Controls: Consider MFA, role-based access controls (RBAC), and other ways to operate on the principle of least privilege.
• Encryption (In Transit and At Rest): Sensitive customer info should be encrypted both in transit (TLS 1.2 or higher for PCI DSS) and at rest (recommendations include AES 256-bit, RSA 2048-bit, end-to-end encryption (E2EE), and the latest FIPS 140 validated data encryption for sensitive financial data).
• Monitoring: Integrity and compliance monitoring can help fintechs spot subtle file changes that indicate tampering and attack, preventing data exfiltration and maintaining compliance. In addition, regular monitoring of security controls, data protection practices, and ongoing risk should be established.

Step 5: Document incident response procedures and reporting obligations

The GLBA Safeguards Rule, PCI DSS, NYDFS, GDPR, and more all require prompt incident reporting and documented incident response procedures. For example, under the Safeguards Rule, fintechs are responsible for notifying the FTC in cases of data theft involving more than 500 customers. Under GPDR, data handlers are required to report breaches to the supervisory authority within 72 hours.

In all cases, incident response and reporting measures should be documented.

Step 6: Track consumer data handling for privacy law compliance (e.g., CCPA)

It is not enough for fintechs to know the strength of their security controls. Because financial data compliance regulations encompass not only data security but also personal data privacy rights, these companies must also keep close watch over where consumer data is stored, how it is used, and what they are communicating with consumers about their data usage under law.

They must also be agile and organized enough to respond to consumer data privacy demands: to delete it, correct it, cease collecting it, etc.

Step 7: Conduct vendor risk reviews with SLAs and security clauses

Third-party oversight is key when working in the highly complex fintech arena. Software suppliers, developers, integrated apps, and more are all susceptible to their share of cyberattacks. To reduce risk, fintechs must make compliance-level security expectations clear at the outset and include them in SLAs and security clauses with third parties.

In addition to initial security questionnaires, fintechs can request additional proof of compliance and security validity in the form of pen testing results, SOC2 reports, vulnerability assessments, and more.

Step 8: Provide employee and developer security training

The key to preventing fintech compliance from being a one-off venture is to get employees in on the investment. Creating a solid, sustainable culture of cybersecurity starts with employee security awareness training (SAT).

Fintechs can work small and have high turnover rates. It is important to establish an ongoing rhythm of continuous SAT, so your employee base is ready at any time.

From teaching customer service representatives to recognize AI-driven phishing campaigns to training developers to shift left and include more baked-in cybersecurity practices, investing in security education is a must for fintechs wanting their compliance efforts to last.

Conclusion

As fintechs seek the protection and insurance afforded by taking on official “financial institution” status, they will be increasingly subject to regulation. Even now, fintechs are responsible under multiple laws for the safe handling, collection, and storage of sensitive customer information, financial and otherwise.

The financial technology space is inundated with innovative, intrepid companies looking for a leg up and a way to separate themselves from the pack. Being slammed with a major compliance violation could be enough to do irreparable damage, both to your reputation and your bottom line.

Whether your fintech is a startup or an established “firm”, market trends are going towards ever more protection of consumer financial data. Adopting a proactive compliance stance now is key to outpacing regulators and staying one step ahead of the pack.