.png)
Fraud is on the rise, and, just like banks, fintechs need to maintain thorough and effective compliance programs to ensure their own safety, longevity, and bottom line.
Fintechs and embedded finance companies have built their appeal on innovation, streamlined customer experiences, and access to new markets. Banks and consumers alike have benefitted from fintech innovation – but, in the past, it has sometimes come at the cost of appropriate compliance and risk management measures.
That’s no longer acceptable. Compliance is not a “problem” that only banks have to deal with; fintechs also need to have effective and robust compliance and risk management programs in place to protect their customers, protect themselves, and to ensure they grow – safely and securely.
Rising fraud + increased regulatory scrutiny = need for compliance-first approach
Financial crime is on the rise. Digitization has revolutionized the banking industry (and customer expectations), but it has given bad actors more sophisticated methods of committing financial crimes.
Unit21’s 3rd Annual State of Fraud and AML Report found that, across the board, scam-related fraud is on the rise. 43% of fintechs and 64% of banks saw at least a 10% growth in scam-related fraud over the past 12 months.
On a global scale, Nasdaq found that in 2023 financial criminals funneled over $3.1 trillion in money laundering and terrorist financing around the world. The report noted that the two biggest areas of concern were with real-time and faster payments, and BSA/AML.
The Nasdaq report found that 90% of financial institutions are placing financial crime prevention as a high priority and are investing in resources to address those gaps – but it's just as imperative for fintechs to prioritize compliance and risk management, especially effective compliance and risk management.
The past couple of years has seen some major compliance failures that have resulted in stricter oversight. Although the incoming Trump administration might loosen some regulatory oversight, experts believe that it ultimately won’t make a huge impact on fintechs and those in the BaaS space.
Fintechs aren’t going anywhere, but in order to succeed, they need to prioritize compliance and risk management and ensure that they are effective.
The biggest consequence of fintech noncompliance is their bank relationships.
Fintechs may not have to deal directly with regulators (yet) – but their partner banks do. Banks are ultimately the ones responsible for maintaining compliance and risk management, but fintechs need to prioritize compliance if they want to grow.
If a fintech has ineffective controls, their bank could be hit with a consent order. And if the bank gets a consent order, the fintech may not be able to onboard any new clients.
For example: Blue Ridge Bank. In January, Blue Ridge entered into a consent order with the OCC due to BSA/AML violations. The consent order stipulated that Blue Ridge was not allowed to enter into any new third-party relationships or “offer new products or services or conduct new activities with or through existing third-party fintech relationships,” unless the OCC approves of it.
Noncompliance prevents growth – for both fintechs and banks. Compliance and risk management has historically been seen as a roadblock to innovation, it’s actually the key to continued growth and success.
As a fintech, you want to demonstrate to regulators and bank partners that (1) you take compliance seriously and (2) you can prove your controls are working correctly. Otherwise, you could be potentially stuck in stasis for years until the compliance issues get remediated.
The Unit21 report identified three areas related to fraud prevention where fintechs and financial institutions need improvement:
The increase in fraud is directly tied to the effectiveness of compliance controls. The Nasdaq report found that, although 75% financial institutions increased their headcount for anti-financial crime, nearly half still cited a lack of adequate resources to fight it.
Similarly, the inability to swiftly deploy new fraud rules and compliance controls to address concerns gives bad actors a wide window to continue their fraudulent activities. The lack of constant, real-time monitoring also gives fraudsters more opportunity to slip through.
So, what’s the solution?
Cable’s automated, always-on compliance testing with 100% coverage.
Customer-facing fintechs are the first line of defense, which makes it imperative that they have effective compliance and risk management controls to mitigate problems early in the process.
Unfortunately, traditional dip sampling methods and manual reviews are outdated, inefficient, and, frankly, can’t keep up with the sophistication of modern fraud – it’s also not scalable to hire more headcount in response to increased compliance needs.
Fintechs need a solution that can test 100% of their compliance controls, 24/7, so they can find any regulatory breaches or control failures immediately.
Compliance testing solutions like Cable can scale easily with your company, no matter how much it grows. You can get 100% testing coverage from day 1 and monitor 100% of transactions and data, 24/7, no matter how many accounts or controls you add.
Given how sophisticated fraudsters are and how rapidly they evolve, slow deployment means rules and controls run the risk of being inaccurate or obsolete by the time they go live.
Cable’s automated compliance testing lets fintechs have 100% testing coverage from the moment they add a new control, which is useful when trying to keep up with the pace of fraud.
Automated testing gives fintechs the confidence to know their compliance controls are working and that they will be notified of any risks, breaches or failures immediately, and minimize remediation costs in the future.
Want to learn more about how Cable helps fintechs grow their business without sacrificing compliance? Check out our case study with Meow.
Aside from the reasons listed above, 24/7 automated compliance testing also benefits fintechs in these three ways:
Fintechs thrive because they typically offer better customer experiences than traditional banks – that’s why many banks partner with fintechs in the first place.
But substantial noncompliance can do irreparable damage to a fintech’s reputation with both its customers and bank partners.
When it comes to compliance, trust is a three-way street. Customers want to know they can trust fintechs with their money and personal data, banks want to trust that their fintech partners won’t get them into hot water with regulators, and fintechs want to trust that their compliance programs won’t hinder their ability to serve both.
Investing in automated compliance and risk management solutions helps build that trust – but it also means fintechs can grow with confidence knowing their controls are working as they should.
Why Fintechs Need 24/7 Automated Compliance Testing.png)
Expanding Compliance Testing: New Modules for Reg E, Reg B, and Reg Z
Compliance as a Competitive Advantage: A Perspective from the Frontlines of Embedded Finance
Fraud is on the rise, and, just like banks, fintechs need to maintain thorough and effective compliance programs to ensure their own safety, longevity, and bottom line.
Fintechs and embedded finance companies have built their appeal on innovation, streamlined customer experiences, and access to new markets. Banks and consumers alike have benefitted from fintech innovation – but, in the past, it has sometimes come at the cost of appropriate compliance and risk management measures.
That’s no longer acceptable. Compliance is not a “problem” that only banks have to deal with; fintechs also need to have effective and robust compliance and risk management programs in place to protect their customers, protect themselves, and to ensure they grow – safely and securely.
Rising fraud + increased regulatory scrutiny = need for compliance-first approach
Financial crime is on the rise. Digitization has revolutionized the banking industry (and customer expectations), but it has given bad actors more sophisticated methods of committing financial crimes.
Unit21’s 3rd Annual State of Fraud and AML Report found that, across the board, scam-related fraud is on the rise. 43% of fintechs and 64% of banks saw at least a 10% growth in scam-related fraud over the past 12 months.
On a global scale, Nasdaq found that in 2023 financial criminals funneled over $3.1 trillion in money laundering and terrorist financing around the world. The report noted that the two biggest areas of concern were with real-time and faster payments, and BSA/AML.
The Nasdaq report found that 90% of financial institutions are placing financial crime prevention as a high priority and are investing in resources to address those gaps – but it's just as imperative for fintechs to prioritize compliance and risk management, especially effective compliance and risk management.
The past couple of years has seen some major compliance failures that have resulted in stricter oversight. Although the incoming Trump administration might loosen some regulatory oversight, experts believe that it ultimately won’t make a huge impact on fintechs and those in the BaaS space.
Fintechs aren’t going anywhere, but in order to succeed, they need to prioritize compliance and risk management and ensure that they are effective.
The biggest consequence of fintech noncompliance is their bank relationships.
Fintechs may not have to deal directly with regulators (yet) – but their partner banks do. Banks are ultimately the ones responsible for maintaining compliance and risk management, but fintechs need to prioritize compliance if they want to grow.
If a fintech has ineffective controls, their bank could be hit with a consent order. And if the bank gets a consent order, the fintech may not be able to onboard any new clients.
For example: Blue Ridge Bank. In January, Blue Ridge entered into a consent order with the OCC due to BSA/AML violations. The consent order stipulated that Blue Ridge was not allowed to enter into any new third-party relationships or “offer new products or services or conduct new activities with or through existing third-party fintech relationships,” unless the OCC approves of it.
Noncompliance prevents growth – for both fintechs and banks. Compliance and risk management has historically been seen as a roadblock to innovation, it’s actually the key to continued growth and success.
As a fintech, you want to demonstrate to regulators and bank partners that (1) you take compliance seriously and (2) you can prove your controls are working correctly. Otherwise, you could be potentially stuck in stasis for years until the compliance issues get remediated.
The Unit21 report identified three areas related to fraud prevention where fintechs and financial institutions need improvement:
The increase in fraud is directly tied to the effectiveness of compliance controls. The Nasdaq report found that, although 75% financial institutions increased their headcount for anti-financial crime, nearly half still cited a lack of adequate resources to fight it.
Similarly, the inability to swiftly deploy new fraud rules and compliance controls to address concerns gives bad actors a wide window to continue their fraudulent activities. The lack of constant, real-time monitoring also gives fraudsters more opportunity to slip through.
So, what’s the solution?
Cable’s automated, always-on compliance testing with 100% coverage.
Customer-facing fintechs are the first line of defense, which makes it imperative that they have effective compliance and risk management controls to mitigate problems early in the process.
Unfortunately, traditional dip sampling methods and manual reviews are outdated, inefficient, and, frankly, can’t keep up with the sophistication of modern fraud – it’s also not scalable to hire more headcount in response to increased compliance needs.
Fintechs need a solution that can test 100% of their compliance controls, 24/7, so they can find any regulatory breaches or control failures immediately.
Compliance testing solutions like Cable can scale easily with your company, no matter how much it grows. You can get 100% testing coverage from day 1 and monitor 100% of transactions and data, 24/7, no matter how many accounts or controls you add.
Given how sophisticated fraudsters are and how rapidly they evolve, slow deployment means rules and controls run the risk of being inaccurate or obsolete by the time they go live.
Cable’s automated compliance testing lets fintechs have 100% testing coverage from the moment they add a new control, which is useful when trying to keep up with the pace of fraud.
Automated testing gives fintechs the confidence to know their compliance controls are working and that they will be notified of any risks, breaches or failures immediately, and minimize remediation costs in the future.
Want to learn more about how Cable helps fintechs grow their business without sacrificing compliance? Check out our case study with Meow.
Aside from the reasons listed above, 24/7 automated compliance testing also benefits fintechs in these three ways:
Fintechs thrive because they typically offer better customer experiences than traditional banks – that’s why many banks partner with fintechs in the first place.
But substantial noncompliance can do irreparable damage to a fintech’s reputation with both its customers and bank partners.
When it comes to compliance, trust is a three-way street. Customers want to know they can trust fintechs with their money and personal data, banks want to trust that their fintech partners won’t get them into hot water with regulators, and fintechs want to trust that their compliance programs won’t hinder their ability to serve both.
Investing in automated compliance and risk management solutions helps build that trust – but it also means fintechs can grow with confidence knowing their controls are working as they should.
