The birth of FinTech or Financial Technology can be traced back to the 1960s as traditional banking paved the way for easier and more efficient transactions through ATMs. But when mobile banking took hold in the 21st century, it revolutionized the way people
managed their finances.
As is often the case however, technological breakthroughs and digitalization often come with unanticipated risks. For FinTech, the rapid spread of mobile and online banking dramatically increased cybersecurity and privacy threats.
While these organizations have made the natural step to continue creating people-centric, personalized user experiences that directly oppose and decentralize the obsolete structure of large banks, as a result the FinTech industry has found itself littered
with data privacy concerns.
23% occurrence and often in possession of sensitive payment information, the financial industry is the most vulnerable space to phishing attacks and breaches. This keeps organizational leaders on their toes and scouring for the best solutions to ensure
a safer and stronger data protection program.
To keep up with the advancements in technologies like blockchain, AI, and cryptocurrencies, FinTech companies are overhauling their existing models to ensure compliance with global data protection regulations like the GDPR, LGPD, and CCPA, in addition to
sector-specific laws we’ll cover below. Here’s how the most forward thinking FinTech companies are approaching compliance to shield both companies and users from data privacy threats.
Embed Security into Initial Design
Privacy by Design is a fundamental part of modern IT, cybersecurity, and risk management practices, which requires privacy to be an integral part of systems and technologies from the outset, rather than dealing with privacy issues as an afterthought.
In a nutshell, it’s privacy by prevention, not by remedy. Instead of addressing privacy concerns after the introduction of new technologies, business processes, or disruptions, the Privacy by Design approach, which is one of the core principles of the EU’s
GDPR, involves incorporating privacy into the initial development or conception of organizational decisions.
FinTech, more than any other industry, benefits from this approach. In addition to promoting a robust culture of privacy, implementing this approach will also ease the burden of complying with the lengthy list of privacy regulations that affect the sector.
Defining Risk Framework
Risk management mitigation is paramount in FinTech companies. It is crucial to adopt an end-to-end approach and prioritize risk-based actions. This involves creating and documenting a risk framework that corresponds to the regulatory and operational risks
identified through a formal assessment of enterprise risk.
Once the framework and regulatory risk processes and programs have been established, the next step is to conduct regular testing to further detect risks, implement measures, and ultimately mitigate them. To ensure that this is deeply ingrained in a company’s
ethos, employees should be empowered to voice any concerns related to risk.
Develop a Culture that Follows the Latest FinTech Regulations
Developing a culture that normalizes and standardizes the latest regulations is key. Below are some of the regulations and standards that every FinTech company should comply with, depending on their geographical location:
Payment Card Industry Data Security Standard (PCI DSS) - PCI DSS protocol is the gold standard for organizations handling credit cards from major payment networks.
ISO/IEC 27001 - ISO/IEC 27001 is crucial for organizations to establish an information security management system. This enables FinTech companies to adopt a risk management process specifically customized to their size and requirements that can be adjusted
General Data Protection Regulations (GDPR) – Known as the most stringent privacy law globally. GDPR stands out because it doesn't only apply to organizations based within the European Union, but also to companies that collect or process information related
to users residing within the EU.
Revised Payment Services Directive (PSD2) – This European Union directive mandates measures to ensure secure electronic payment initiation and processing, as well as safeguarding customers' financial information.
Gramm-Leach-Bliley Act (GLBA) – GLBA is a US Congressional act that enhances competition in the financial services industry by establishing a prudential framework for the affiliation of banks, securities firms, and other financial service providers.
At the end of the day, these standards and regulations are prerequisite to the assurance of data privacy in an era where FinTech is vulnerable. To avoid any legal and financial consequences, staying on top of all these laws is necessary.
With multiple state laws passing in the US and more to come in 2023, the matter of data privacy is more pressing than ever. For a traditionally regulated industry like FinTech, that means embracing the new age of compliance or potentially risking some of
the gains the technological advances of the past few decades have brought about.