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Jan 30, 2023

Fintech Regulation in United states

Fintech refers to technological innovations that aim to disrupt the financial industry and make financial services more accessible to the common man. Regardless of the intention, the fact remains that technology is a tool. And like all tools, That's undue advantage can be taken by anyone if it is not regulated. Fintech regulation prevents this.

Regulatory policies govern fintech operations to ensure they advance the public's interest and do not compromise the integrity of the financial system.

Fintech and its regulation in United States

At the moment, there is no single regulatory framework for them to work with. Hence, they must navigate both federal and individual state regulations wherever they intend to operate. 

However, one thing is certain: US fintech regulation is evolving. Efforts are being made at both federal and state level to understand the industry and develop effective regulation. For example, the Conference of State Bank Supervisors (CSBS), engaged in an effort for the different state supervisors to collaborate on licensing and supervision.

What risk does a Fintech solution face?

Besides the strategic and operational risks any fintech startup faces, there are many data security and regulatory compliance risks that fintech shares with traditional banks:

  1. Money Laundry

  2. Data Privacy

  3. Cyber Attack

  • Money laundering: It leads to global losses worth up to trillions a year, which makes anti-money-laundering (AML) policies a top priority for any business dealing with financial information. Australian fintech EML Payments’ recent share crash — the company lost half its value overnight because of money laundering risks and will likely face legal action — shows what a blow to both reputation and profits money laundering issues can be.

  • Data privacy: Protecting sensitive information and preventing data breaches are among the most pressing issues for fintechs. When a data protection problem is identified, regulatory bodies can impose fines on companies. In EU member states, GDPR non-compliance can result in fines of two to four per cent of a company’s annual revenue.

  • Cyberattacks – Financial organizations are a hot target for cybercriminals, and both traditional banks and fintechs rank cybersecurity as a major concern. Several headline-making cases of hacks on cryptocurrency exchange platforms prove that the digital financial sector is extremely vulnerable.


Act and Regulation that regulate Fintech Industry

There are various regulations that guide fintech operation. Some of those are specially related to specific companies. Others are common for the finance industry.

Most common regulatory Act are as follows: 

Gramm-Leach-Bliley Act (GLBA)

This act, also known as Financial Services Modernization Act of 1999, is a United States federal law requiring financial institutions to explain how they share and protect their customers' nonpublic personal information (NPI).

The main goal of the Gramm-Leach Bliley Act (GLBA) is to protect investors from financial fraud. The Gramm-Leach Bliley Act does this by ensuring the security of customer information, both personal and financial, by mandating that financial institutions take the measures necessary to ensure this.

Fair Credit reporting Act

The FCRA Act guides how financial institutions can collate consumer      information. Furthermore, it broadens consumer rights on how credit reports can be accessed.

Anti- Money Laundering Acts (AML)

The Bank Secrecy Act and the USA Patriot Act are the two components of Anti Money Laundering Acts. These two Acts provide a guideline for financial institutions on customer due diligence (CDD), record keeping and anti money laundering programs.Furthermore, the Patriot Act provides certain requirements for financial institutions to operate cross-border transactions.

The Bank Secrecy Act (BSA) 

Aimed at the detection and prevention of money laundering. Financial companies are obliged to monitor their systems against suspicious activities and report potentially criminal transactions.
The US Patriot Act 

Controls customer identification standards and Know Your Customer (KYC) policies. Financial organizations are required to establish anti-money-laundering practices and train employees to comply with these practices.

Securities Act and Exchange Act

The Securities and Exchange Act of 1934 (Exchange Act) is United States legislation that regulates securities trading on the secondary market, stock exchange markets and the participants involved to protect investors. The secondary market is where sales of financial assets, such as stocks, bonds, stock options and stock futures, are made after a security or asset is initially issued by a company

This list is not exhaustive, and you need to do research related to your business’ specific niche and service locations. Furthermore, there are additional laws for particular security practices, for example, how biometric recognition technologies are regulated vary from one state to another. 



Fintechs have similar responsibilities as banks and, therefore, are heavily regulated, with new regulations raising the compliance bar over time. The fintech sector’s strongest suit is its innovative use of technologies and ease of use, while compliance and security issues remain its toughest challenge.

Companies can lose a lot of their capital, as well as their customers and reputations, because of data breaches, thefts, and regulatory laws violations. It’s crucial to know the regulations your business needs to be aware of, and ensure that transactions and data usage within your product are secured and compliant.


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