Fintech Compliance Risks and Regulatory Landscape 2023

The risks and regulatory landscape for fintech companies are complex and constantly evolving. To survive, you must navigate a patchwork of federal and state regulations. These include the US Patriot Act, the Bank Secrecy Act, the Fair Credit Reporting Act, and Regulation E, among others.

In recent times, the growth of fintech products and services has led to increased regulatory attention and, in some cases, caused regulatory challenges for fintech companies. The CFPB, in particular, has introduced a significant number of fintech compliance frameworks over the past few months. This increase also highlights the growing need for effective regulation of the fintech sector to protect consumers from financial harm and continue to maintain the integrity of the financial system.

In this article, we look at the categories of fintech, regulatory requirements, and some fintech regulation trends in 2023.

What are the four categories of fintech?  

There are many categories of fintech, but the four major ones are payment services, digital banking, digital investing, and wealth management, as well as cryptocurrency and blockchain technology.

These four categories of fintech are often lumped together because they have many similar characteristics. While each has its own set of rules and regulations specific to the industry, there are also some similarities between them that make them all fit into one category.

It is also important to mention that these categories are broad enough to include thousands of different types of products and services. For example, there are thousands of smartphone apps that help users make payments using their phones instead of cash or credit cards. There are also dozens of new ways to invest money through robo-advisors who manage investments for users automatically based on their goals and risk tolerance.

1. Payments These are the most popular and widely used category of fintech. They provide users with electronic payment methods to transfer funds or pay for goods and services through their mobile devices. Payment services have revolutionized the e-commerce industry, making it easier to help merchants process payments from customers using credit cards, debit cards, and other forms of payment. According to a report cited by Shopify, online retail sales are projected to reach $6.51 trillion by 2023, and e-commerce will comprise 22.3% of total retail sales. We can see the power of payment gateways is in full effect.

2. Digital banking: These are banks that offer digital versions of their products and services, such as online banking accounts and debit cards that can be used anywhere in the world. Here, traditional financial institutions use financial technology to improve customer experience. Examples include chatbots that answer customer questions or mobile apps that help users manage their accounts on the go.

3. Digital investing and wealth management: These companies make it easier for investors and businesses to find investment opportunities and manage their portfolios of stocks, bonds, and mutual funds. They also offer automated advice tools that can help individuals and businesses make smart choices based on their situations.

4. Cryptocurrency and blockchain technology: Cryptocurrency is a digital currency based on cryptography, which makes it secure and difficult to counterfeit. Blockchain is a digital ledger that records transactions. It can be stored on a centralized server or multiple computers. It is the underlying technology behind cryptocurrencies and is also used in various other applications, such as supply chain management and voting systems.

The regulation of cryptocurrency and blockchain technology is a work in progress globally. Some countries are supportive, while others are cautious, and some have banned it altogether. Despite the evolving landscape, regulation is necessary to protect consumers, prevent fraud, and ensure financial stability.

What are 2023 fintech Trends?

The fintech industry is moving faster, and here are the top 3 trends. 

1. Managing Risks through Technology: Breaches in the financial industry ranked second among all industries in 2022. This year, risk management will continue to be a key focus in the fintech industry, with a greater emphasis on utilizing technology to ensure compliance, protect privacy, and enhance cybersecurity. 

Technologies such as artificial intelligence (AI), machine learning (ML), and blockchain will significantly mitigate risk. This shift towards technological-driven risk management will help companies to effectively navigate an increasingly complex and regulated landscape.

2. Exploring the benefits of Blockchain and Cryptocurrencies: Blockchain technology has seen significant investment from banks and other institutions over the past year. While some banks have been experimenting with blockchain for payments, others have looked at using it for more complex applications such as smart contracts or securities settlement.

What’s more, the global cryptocurrency market is predicted to grow to $12.10 billion by 2030, with a compound annual growth rate (CAGR) of 11.9%. In 2023, the adoption of blockchain and cryptocurrencies is expected to increase significantly, with many businesses, governments, and individuals exploring the potential of these technologies to streamline processes, increase security, and promote financial inclusion. 

3. Embedded Finance: Embedded finance refers to the integration of financial services and products directly into everyday products and services rather than being offered as standalone offerings. It allows businesses to provide financial services, such as payments, loans, and insurance, directly within their own products and services, reducing friction and increasing customer engagement.

Some examples are personal finance management tools integrated into digital banking apps, insurance services integrated into ride-sharing apps, digital wallets integrated into e-commerce platforms, and point-of-sale loans offered at retail stores.

Finextra describes 2023 as “the year of embedded finance.” Another authority site, EU-Startups, contemplates if it could be “the Baas trend to watch in 2023”. In 2023, embedded finance will continue to gain widespread adoption. More businesses will leverage this trend to differentiate themselves from the competition and drive customer loyalty.

What are the regulatory requirements for fintech? 

The regulatory environment for fintech companies can vary significantly between different jurisdictions. In the United States, regulatory requirements are divided between the federal government and individual states, each with its own regulatory agencies of differing authority.

For example, the Consumer Financial Protection Bureau (CFPB) is a federal agency that oversees consumer protection in the financial services industry. It can take action against fintech firms for violating laws that protect consumers from predatory lending practices, unfair billing practices, and other violations of federal law.

At the state level, agencies such as the California Department of Financial Protection and Innovation (DFPI)  regulate specific aspects of financial services within their jurisdiction. To stay compliant with these regulations, businesses must thoroughly understand the fintech regulatory requirements specific to their industry and jurisdiction. This includes:

Adhering to consumer protection regulations: Fintech companies must follow consumer protection regulations without fail. For example, the Consumer Financial Protection Bureau (CFPB) released a 71-page document in October 2022 that included a provision to improve the security of consumers’ financial data. This provision targets the practice of screen scraping and requires banks to establish and maintain standardized software called application programming interfaces (APIs). 

Obtaining necessary licenses: Fintech companies must obtain the appropriate licenses and permits from relevant regulatory bodies to operate legally in their jurisdiction. The license a fintech company must obtain depends on the type of financial services it offers. For example, if a fintech startup wants to operate BaaS in the United States, it must obtain a federal or state banking license. Some other common licenses include Money Transmitter License (MTL), Securities and Exchange Commission (SEC) Registration, and National Mortgage Licensing System (NMLS) License.

Implementing robust AML and data security measures: Regulators require fintech companies to implement Anti-Money Laundering (AML) and Know Your Customer (KYC) programs that comply with local and international standards. In this case, fintech audits should not be overlooked in the compliance checklist.

In addition to having strong AML controls in place, a fintech compliance checklist must also include adequate data security measures in place to protect customer information.

Failure to comply with these regulations can result in significant fines, legal repercussions, and reputational damage. Thus, for fintech firms, investing in compliance expertise and resources is essential to keep up with the constantly changing regulatory environment.


Fintech has grown so quickly that it only makes sense for regulators to step up the (fintech) compliance framework. As regulatory changes take effect, you would need to learn exactly what they mean. As a matter of fact, it is important to understand local laws in this situation because the rules may differ from state to state.

RADD LLC is here to help. Our team of experts specializes in providing top-notch fintech compliance services such as BaaS platform testing and compliance for Software as a Service (SaaS). By partnering with us, you can rest assured that your fintech business is in good hands and stays ahead of the compliance risks. So don’t hesitate to reach out to us today and let us help you navigate the fintech landscape with confidence.

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