Compliance in financial services is challenging. But when you’re building a financial app, you need to have a strong compliance stack in your back pocket.
When it comes to building a financial stack, finance leaders are looking to optimize their tech stack to custom and proactive models. But financial services should look to compliance as a key requirement in their infrastructure and management.
This blog will address the core financial technology stack your fintech app needs:
Basic Compliance Requirements for Fintech
Compliance makes the wheels of financial sectors and fintech turn, and it operates as a necessary requirement (and safeguard) for the many financial payment systems that operate worldwide.
In the U.S., strict compliance is mandatory for sending money transfers, operating on the ACH network, gaining access to checking accounts and savings accounts, managing accounts, and sending money internationally from U.S. accounts. In order to do this, individuals and entities must be approved under the varying financial laws and regulations, which include:
- MTL and Federal Licensing. Fintech apps need state and federal licensing to operate. Required licenses vary but may include consumer lending, money transmission, and virtual currency licenses. Using a banking as a service software can help offload the cost and time associated with obtaining licensing.
- The Consumer Financial Protection Bureau (CFPB). Fintech needs to abide by the CFPB, which enforces consumer protection laws (such as consumer ending laws and anti-discrimination laws).
- The Commodity Future Trading Commissions (CFTC) or SEC. Depending on the activities of the product, a fintech provider may be required to register for the CFTC and SEC and will be subject to their enforcement.
- FinCEN, BSA, AML. Fintech companies need to register with FinCEN and comply with Bank Secrecy Act (BSA) and anti-money laundering (AML) laws and regulations, as is standard for all U.S. financial services.
- Office of the Comptroller of the Currency (OCC). The OCC is the primary federal bank regulator for national banks and they oversee financial institutions and fintech companies who receive deposits, lend money, and paycheques.
Amplify Your Tech Stack With Embedded Compliance
As with any other product, financial apps should serve customers. But, a lot of the time, financial companies have to modify the product for necessary compliance. For example, a fintech firm can’t successfully operate in finance without getting customers approved through KYC, or Know Your Customer.
If you want to allow customers access to bank account linking, digital wallets, or sending domestic wires, customers must be eligible and approved. Operating a financial app without these compliance features is impossible. Therefore, you need to make these considerations at the start.
Building a Compliance-ready Tech Stack
Businesses must address compliance throughout every stage of the process. And since each app will be custom, that means your compliance features are custom as well. Here’s how to prepare for your compliance-ready tech stack:
R&D and Market Research
The first stage of any product is R&D. You might already have this part scouted out, but developing your product within the market and addressing customer pain points is obviously crucial.
In this research, try not to get sucked down through the avenue that you “have to go with a bank” in order for your fintech app to be successful. In fact, this route may be the biggest cause for concern when sourcing support for regulatory compliance.
Banks don’t really provide it. Instead, consider outsourcing everything with a partner vendor like Sila, who can provide the pre-integrated APIs, bank access as a bank agent with Evolve Bank and Trust, and compliance embedded.
Client Pain Points
What you find in R&D and market research should pertain to financial sector pain points and compliance needs. For example, if you want a money transfer tool to send money to friends, one common pain point could be bank account linking, financial data storage or high fees.
Fees might be associated with high compliance costs, like high charges from banks, and this might be controllable through the Sila API.
But your compliance features will ultimately depend on your setup. If you are partnering with a bank and going the route of an API aggregator, then you’ll have to also research and source KYC API integrations and data management services.
However, if you go with a service like Sila, then you’ll be able to offload the costs and time expenses of creating KYC features and can easily access them in the Sila API.
Integrations and Data Management
Integrations are critical to fintech apps because most apps cannot (or will not) do it all. Without integrations, financial firms would be spending millions of dollars every year on setting up compliance licensing and features, building API code, and managing financial legalities as a bank themselves. Integrations are core to what fintech does, so you must make sure that every compliance feature is in-line with this.
A huge issue with this comes with data sharing. Financial services collect loads of sensitive data on individuals and entities, and fintech startups must be able to manage this data appropriately. If you are collecting this data yourself, then you’re putting your company and your customer data at risk.
The best route for this compliance feature is to outsource sensitive data collection. At Sila, we outsource bank account linking and KYC/KYB so that none of the sensitive information needed to access financial services by Sila.
This is a core compliance feature to consider in your stack as the alternative is thousands if not millions of dollars, risk to reputation, and higher fees to your customers, among many other things.
Strong Dashboard for Client Management
Identity verification is required at client onboarding, but audits and regular identity checks will need to be made throughout the end user’s tenure within your app. Therefore, your firm needs tech for continual compliance monitoring.
A sophisticated and compliance-friendly dashboard will be helpful in this regard. It should also provide you with the tools and capabilities to perform further research and KYC checks about clients and investigate any red flags, like too many ACH returns by clients, easily and intuitively.
Compliance Advisor or CCO
Your financial stack wouldn’t be complete without a compliance adviser or chief compliance officer on your team. Compliance is very important and complicated, and even with embedded compliance features, you’ll want someone on hand you can trust to run this side of operations.
When you work with a SaaS company like Sila, our team is ready to support you when it comes to running your app and working through common problems. However, we always recommend you have a compliance expert on hand as well to support you in real-time.
Supercharge Your Financial Compliance Stack With Sila
When it comes to doing compliance, you’ll want a strong finance tech stack and security controls on your side. With our embedded compliance features, you’ll have a lot of the nitty-gritty about compliance already in place:
- Digital wallet API with pass-through $250,000 of FDIC insurance
- Bank account linking API with secure data storage
- KYC/KYB API and document verification
- ACH API with ACH Network access
- Simplified compliance management with an easy-to-use dashboard with analytics
- Strong compliance support through Sila’s expert team
- Financial automation that addresses regulatory requirements
Having compliance streamlined makes it easier for your finance teams and customer experience. Ready to turn your idea into a reality? Reach out to the Sila sales team.
Outsource your US Financial Compliance with Sila
Financial compliance is tedious and costly, and it’s even worse if you fail it. Outsource your US financial compliance with Sila.
Sending ACH Payments with Sila
With secure solutions like Sila, you can move ACH payments and money internationally faster (and more affordably) than ever before.
U.S. Know Your Customer (KYC) Regulations and ACH Payments
If you operate as a financial institution or a third party payment processor (TPPP) and wish to send money through the U.S.’s Automated Clearing House (ACH), then you must follow the guidelines for knowing and verifying your customers. Older guidelines were centered around Customer Due Diligence (CDD), but more updated measures look to KYC, or the Know Your Customer rule.
Best Built-In Fraud Monitoring Features to Fight Fraud
The API is a powerful tool for monitoring your fraud. It offers many features that can help you identify and stop fraud before it becomes a problem.
How KYC and KYB Applies to Fintech Firms
Managing KYC and KYB can be tricky. Here’s a brief overview of what KYC and KYB means to fintech firms and how to prepare for it.
Estimating ACH Transfer Times
Some ACH transfers can take up to four business days. Estimate appropriately and inform your users ACH transfer times for optimal customer experience!