The 5 Biggest Compliance Threats for Financial Institutions and How to Avoid them

In the financial industry, regulations are a big deal. You have to comply with them to stay in business. Whether it’s payment fraud, cybersecurity breaches, money laundering, or terrorism financing, regulators are always ready to pounce. 

Financial institutions (FI) need to keep watch on potential threats when it comes to regulatory compliance. Unfortunately, the regulatory environment is so complicated and dynamic that many banks, money transmitters and credit unions struggle to keep up with new regulations, let alone anticipate potential threats. 

That’s why we have put together this list of the five biggest compliance threats facing FI’s today—and how to avoid them.

1. Cybersecurity

Cybersecurity threats are rising as cybercriminals develop more sophisticated methods to steal information and defraud organizations. To protect your FI from these threats, you need to implement a robust cybersecurity program that includes several components, such as the following.

  • Conduct regular risk assessments. You cannot ignore how vulnerable your business is to cybersecurity breaches. The cost of one breach can be millions of dollars. Regular risk assessments will help you identify areas where improvements can be made so that no gaps in security are left open for criminals to exploit. Include this practice in your cybersecurity policy, so employees know what it entails and when they should participate.


  • Keep up-to-date on changing regulations regarding data privacy laws such as the European Union’s GDPR or local equivalents (such as California’s Security Breach Information Disclosure law). As new rules emerge or existing ones change, ensure all employees are aware of them, so everyone knows what is expected from them.

2. Third-party relationships

Third-party relationships are another area that can present a compliance risk. As a FI, you’re likely to have numerous third parties in your orbit: suppliers, business associates and vendors are just some examples of the types of organizations you may interact with. Given the potential for fraud and money laundering that each of these relationships presents—and given that they’re outside your direct control—you need to be aware of how these interactions could impact your organization.

Third-party relationships can also lead to corruption risks differently than other relationships. For example, suppose a vendor offers bribes or kickbacks to secure business. In that case, it can be difficult for an organization to detect this type of misconduct internally because it doesn’t fall under any ordinary audit program or internal process.

To avoid this, you should closely monitor your third parties’ activities and conduct thorough background checks before entering into agreements with them. Then, if someone does pose a potential threat, terminate their contract immediately and report them to authorities if necessary!

3. Payment Fraud

Payment fraud is an ever-changing threat that continues to evolve with the times. With new technology available, scammers are finding new ways to trick consumers into giving them their money—and they’re getting better every day. This means that it’s more essential than ever for FI to be highly aware of the latest tactics used by criminals to stay ahead and keep customer funds safe from harm.

A payment security risk could lead to the unauthorized disclosure of sensitive financial information. These include:

  • Malware attacks on your computer systems
  • Phishing attempts by email or phone
  • Unauthorized access or use of customer data from insider threats, such as employees or contractors.

To avoid compliance threats, your business must be proactive about payment security. Here are some steps you can take to mitigate risks:

  • Understand the regulatory landscape and requirements for compliance in your industry. If some laws or regulations affect how money should be handled, ensure you understand them inside and out, so they don’t trip up your organization later.
  • Review the policies at play within your organization before making any changes or implementing new processes, so everyone is on board with the end goal and knows what they need to do their part to achieve it.
  • Be aware of all your payment methods’ vulnerabilities and ensure customers know them too! Most FI’s now offer online banking services through mobile apps, which can be convenient but also put users at risk if they’re not careful with their security settings (like two-factor authentication).

4. Misuse of confidential information by employees

The next most significant compliance threat is employee misuse of confidential information, which can take many forms. In one incident, for example, a team member at an investment firm left his position to work for a competitor. After he left, he sent himself hundreds of emails containing sensitive client information—including account numbers and passwords—by forwarding them from the company’s email server without authorization.

This type of situation is not uncommon in financial services. Unfortunately, employees are often the weakest link in the chain because they’re privy to more information than they should be. As a result, they may be blamed when breaches occur. Their access to confidential data makes them prime targets for hackers looking for insider information on how systems operate or where vulnerabilities lie.

However, it is possible to significantly address this threat by educating employees on the steps to take if they detect a security breach. For example, you should train them on correctly reporting suspected fraud or misconduct and ensure there isn’t any unauthorized access to data occurring within your organization’s walls.

You should also ensure that your employees know the importance of protecting personal data, so they don’t accidentally leak information about clients or employees without knowing it themselves!

However, the best way for financial institutions to avoid employee misuse is to have an effective IT security policy that includes regular audits, encryption and other safeguards that may be required in different situations.

5. Time and resource shortages

One of the most significant compliance risks is time and resource shortages. If you cannot devote adequate resources to avoid compliance issues in the first place, they can quickly turn into big problems.

For example, when it comes to data security, it’s essential that your company has a plan for dealing with any problems that arise—and those plans should be clear and easy for employees to execute. Don’t just tell them how something should work. Instead, walk them through it (step by step) so they know what needs to be done and why.

Another way to reduce compliance risks related to time and resource shortages is by having the right people in place. You will need those who understand their responsibilities within your organization’s compliance framework and can deal with any issues that arise as soon as possible (or at least report them immediately).


In summary, we’d like to emphasize the importance of being proactive about compliance issues for your FI. While it’s tempting to think that compliance isn’t worth the time and effort, the fact is that you can take steps today that will protect your business from these highly possible threats tomorrow.

If you need help managing your compliance program, contact RADD LLC today! We specialize in helping FI’s overcome the risks of non-compliance through audits, internal investigations and training programs tailored to each company’s unique needs.