Three strategies for fintechs, banks and BaaS providers to navigate the changing regulatory environment

In 2025, fintech companies face a complex and tightening regulatory environment, shaped by state-level oversight expansion. A modern compliance function must do more than monitor AML/KYC obligations. It must track evolving consumer protection, data privacy, and marketing rules, conduct regular risk assessments across products, services and third-party relationships, coordinate enterprise-wide compliance training and policy updates and provide structured oversight of third-party vendors. The consequences of non-compliance are growing. In Jan. 2025, the SEC announced a record-setting quarter for enforcement actions, including 200 enforcement actions, compared to the FY2024 total of 583. While large traditional firms have borne the brunt of recent fines, fintechs are no longer flying under the radar.  

Establishing a compliance team with clear accountability, supported by written policies covering AML/KYC, UDAAP, data handling, and third-party oversight, not only ensures your fintech can respond to today's requirements but also builds a foundation for sustainable growth and trust, while preparing for future compliance requirements. 

As fintechs rapidly expand in customer volume, transaction complexity and regulatory exposure, operationalizing compliance at scale becomes critical. Compliance can no longer function as a reactive function or manual checklist; it must evolve into a tech-enabled operating model that supports sustainable growth, product innovation and regulatory trust. 

A key part of scaling effectively is embedding compliance into systems from the outset. Fintechs developing proprietary platforms or internal systems should prioritize integrating compliance tools and controls during the design phase, not after launch. Retrofitting these features later is often costly, inefficient, and risky, especially in a fast-changing regulatory landscape. Demonstrating that compliance is built-in from day one also fosters more productive conversations with potential banking partners accustomed to highly regulated environments. 

Forward-thinking organizations should incorporate controls for AML/KYC, data privacy and consumer protection directly into their architecture. This includes automated monitoring, audit trails, and scalable policy enforcement mechanisms, ensuring systems are designed to meet regulatory obligations from the start and enabling smoother bank partnerships. 

To meet rising expectations from regulators, investors, and bank partners, fintechs must also integrate automation across the compliance lifecycle, deploy advanced analytics and AI and engage regulatory and risk advisors early. These steps help ensure that compliance functions are scalable, proactive and aligned with business objectives. When fintechs can align their system design with the regulatory expectations of their partners and mutual long-term growth strategies, a successful partnership can be executed on. Ensure compliance is not an afterthought, but a foundational element of technology and operations. 

Effective relationships with sponsor banks are essential for fintech companies utilizing BaaS. Conducting comprehensive due diligence on potential banking relationships helps assess their compliance history, risk management capabilities and fintech alignment. Clearly defined contracts must outline the compliance obligations of both the fintech and the bank. Regulators are increasingly holding banks accountable for the conduct of their fintech partners, pushing sponsor banks to raise the bar on due diligence, ongoing monitoring and governance. Fintechs that don't maintain strong, transparent relationships will face more friction or, worse, risk being offboarded.  

A significant hurdle for fintechs lies in clearly defining the allocation of responsibilities for regulatory compliance between themselves and the banks they are working with. Ambiguity in contractual agreements and operational processes can lead to lack of oversight, increasing the risk of non-compliance. While the ultimate regulatory liability often rests with the bank, fintechs must understand and fulfill their specific obligations, particularly in customer-facing areas. Sponsor banks are likely to ensure adherence to the following areas: 

• Information security and cybersecurity: requirements will include comprehensive IT audit procedures to be performed and may also require a System and Organization Controls (SOC) 1 and/or SOC 2 report, depending on the services of fintechs 
• AML/KYC: requirements will include independent testing to show adherence to AML/KYC requirements. 
• Regulatory compliance: Requirements may include applicable alphabet soup of regulatory compliance, depending on the scope and services the fintech offers. The fintech should be prepared to understand what compliance areas would be applicable and ensure appropriate policies and procedures are in place. 
• Model validation: For those fintechs that may be offering a model as part of the services, the fintech should be prepared to have a model validation performed over the core product to meet model risk governance requirements. 

Maintaining open, consistent communication channels with banks facilitates transparency and collaborative compliance management. Regular compliance reporting and updates strengthen relationships and prevent misunderstandings. Fintechs should also prioritize contingency plans to manage potential disruptions or relationship terminations to help ensure business continuity.