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Regulatory compliance: What you need to know

If you’re a digital innovator thinking of offering any kind of financial services within your platform, you’ll be aware of the need for regulatory compliance when offering any service that includes money flows. But there’s a huge difference between knowing the compliance basics and understanding the intricacies of compliance to build and scale a financial product.

For startup founders, that difference can be nothing short of intimidating. When your priority is to get your application up and running fast, the compliance red tape can seem like a road of tripwires, waiting to catch your product around the ankle.

But what exactly does regulatory compliance involve? And is there a way for disruptors to still move quickly without cutting any regulatory corners?

What is regulatory compliance and why does it matter?

Compliance is all about ensuring a business operates in a way that follows financial services regulations and upholds the right standards. It exists to support your business by making sure you make the right decisions in the right way. The benefit to this is simple: bad things do not happen.

When it comes to regulatory compliance, the image that often comes to mind is a wall of paperwork and archaic requirements – a series of hoops that delay innovation. In reality, though, that’s a pretty old-school misconception.

Compliance wasn’t designed to slow you down. It’s there to protect you and your customers. The financial sector is heavily regulated for a reason, and regulatory compliance exists to prevent your system from being used for money laundering or fraud, as well as look after consumers.

Your product might not be completely financial in nature, but if any part of your offering touches a financial service you will need to have the right licences in place and comply with the regulations. There’s no argument or wiggle room – it’s a legal requirement.

There are constant changes to keep up with

Part of what makes regulatory compliance seem so complicated is that it’s not a process you can do once and forget about. Aside from going through onboarding and KYC checks (i.e. “Know Your Customer” identity verification) for each new customer, compliance needs constant monitoring to make sure you’re always in the right.

Financial services regulations change all the time – as soon as one set of revisions is released, the authorities start work on the next. That might mean new documentation requirements when you set up a relationship with a bank. Or it could demand changes to how you monitor transactions and report anomalies.

And that’s only covering a single regulatory zone. Whenever you scale into a new territory – such as from the UK into the EU, or across the different states of the US – that multiplies the number of changes to watch out for.

Even if the regulations themselves aren’t altered, there are still plenty of other rapid changes to keep a constant eye on. For example, sanctions lists can update overnight in the wake of international incidents. If one of your customers is added to those lists, you need to be ready to freeze their assets and report it the moment that list is provided.

Any business bound by financial regulations needs to keep up with the changes and manage them as soon as they’re implemented. If the rules change and you’re left out of step, you can risk having your regulatory licence taken away and your business shut down. There could also be fines and your directors could face personal fines and potentially imprisonment.


Find out more here.

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