The Federal Reserve Bank, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency released guidance on due diligence best practices for the FinTech industry in late August 2021. While these prescribed guidelines pertain to community banks, they emphasize the need for due diligence in the entire FinTech space as it grows in response to COVID-19. The pandemic has created a new need for digital financial services, which has resulted in a surge of new customers and new startups in the Financial Technology industry. With these new opportunities, however, FinTech organizations need to evolve in response to the pandemic, understand the importance of due diligence and regulatory compliance, and implement best practices to satisfy FinTech due diligence.

What Is the New Financial Technology Due Diligence Guidance?

In August, the Federal Reserve Bank, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency released new guidance entitled “Conducting Due Diligence on Financial Technology Companies.” This guidance has been developed to recommend best practices for community banks to perform due diligence, maintain regulatory compliance, and keep customer data secure.

The guidance encourages the consideration of multiple areas when performing financial technology due diligence:

  • Business Experience and Qualifications
  • Financial Conditions
  • Legal and Regulatory Compliance
  • Risk Management and Controls
  • Information Security
  • Operational Resilience

As mentioned, these considerations and best practices apply directly to effective due diligence in the entire FinTech space.

What is the Difference between Traditional Banking and Financial Technology?


Financial Technology firms have identified gaps in the financial services marketplace and used emerging technologies to fill those gaps, while traditional banks have often relied on legacy protocols for services such as accepting deposits and providing loans.

Customer Experience

While traditional banking has been slow to adopt and integrate technology into its processes, FinTech utilizes mobile functionality, big data, and cloud computing to create a very personalized, accessible customer experience.

Security & Risk

Traditional banks focus heavily on the management of risk and the perpetuation of customer security. With the vast integration of open technology in FinTech, the industry requires more layers of due diligence to ensure the security of its customers’ data and the resilience of the digital financial marketplace.

FinTech Is Growing in the Face of COVID-19

The COVID-19 pandemic has created a myriad of opportunities for Financial Technology firms by driving the digitization of banking. Not only has the pandemic created a newfound need for digital banking, but it has also shone a spotlight on the convenience, accessibility, and inevitability of autonomous and cashless financial services.

The compound annual growth rate (CAGR) of Financial Technology is predicted to increase by 10.3 percent by 2030. In the FinTech sector, new customers have increased by 22 percent, the number of transactions has increased by 13 percent, and the retention of existing customers is up by 29 percent.

Digitization of Traditional Banking

As global authorities encourage citizens to avoid being out in public unless completely necessary, bank patrons have had to utilize alternative methods to accomplish their banking needs. Traditional banking has been available in digital formats for some time, but in the wake of COVID-19, banking tasks such as depositing checks and making transfers have shifted significantly in a digital direction.

The Push for E-commerce in Financial Services

The progression of COVID-19 has created a major move toward e-commerce trends in every element of our lives. The work-from-home and teleconferencing movement, telemedicine, and the shift to online education are all elements of daily life that have migrated to digital, e-commerce formats. It is only natural that financial services would be a part of that same push, which has created a drastic emergence of FinTech enterprises to fill that need.

Cashless Transactions

In the effort to proceed in life in a contactless manner, cashless payment and transaction companies have seen a surge in usage and profits. Giants of the contactless payment sector such as PayPal and Square have reaped the benefits of this surge, while organizations not offering a cashless transaction option have felt a significant loss.

Autonomous Finance

With the outpouring of digital banking services and an increasing distrust of major finance corporations, bank patrons have recognized the convenience and safety of autonomous banking. Customers now have the ability to automate more and more of their financial tasks from their devices, such as paying bills, sending money to another person, and even buying and selling stock.


As younger generations get older and older generations become more accustomed to the technologically driven world, digital banking is no longer exclusively for the very tech-savvy individuals. FinTech organizations continue to make online financial services increasingly accessible with QR codes and voice, touch, and facial recognition initiated transactions; anyone can engage in online banking from their devices, not only the young and connected.

Blockchain and Cryptocurrency

The distrust of centralized banking organizations has driven the utilization of blockchain technology to create decentralized cryptocurrencies, including major crypto players such as Bitcoin and Ethereum. With the enormous growth in popularity of cryptocurrencies that exist solely in a digital format, the need for physical cash is quickly depleting.

Due Diligence Within the FinTech Space

While COVID-19 has created enormous opportunities for growth in Financial Technology, this growth also results in the need for essential due diligence performance to protect customer data, meet legal and regulatory compliance, and assure stakeholders of trustworthiness.

Inherent Distrust

The problem: Customers and stakeholders who are exploring or are already invested in the FinTech space have an understanding of FinTech organizations as “rule breakers,” as many FinTech firms are berated within the financial community after suffering significant legal repercussions due to non-compliance and explicit financial crimes.

The solution: Don’t give your stakeholders and customers the opportunity to form a biased opinion of your FinTech organization. Create opportunities for trust from the start by implementing due diligence practices on the ground floor.

Customer Threats

The problem: As FinTech startups set out to gain as many customers as quickly and cheaply as they can, they have a tendency to ignore that not knowing who your customers are can pose a significant threat to all customer information. Know Your Customer (KYC) practices are put in place to comply with anti-money laundering (AML) regulations, which deter criminals from integrating illicit funds into the financial system. Recently, one of the world’s largest crypto platforms, BitMex, paid $100 million in a settlement for multiple violations of AML laws.

The solution: Your FinTech due diligence practices should include Know Your Customer (KYC) checks to ensure organizations are bringing on real customers with verified identities and cash sources, rather than bots or financial criminals who can put the entire enterprise at risk.

Unclear Guidance

The problem: While traditional banks have decades of documentation of compliance guidance, FinTech is still new on the scene, and compliance guidance can be unclear. Compliance regulations have also been slow to come about as regulators are unfamiliar with Financial Technology territory and are themselves unsure of how to regulate it.

The solution: It can be difficult to know where to start when implementing due diligence protocols into your FinTech organization. Working with experts at a proven due diligence company can help FinTech organizations determine what the right steps are for your unique firm.


The problem: FinTech organizations, especially new startups, have specific budgets to maintain, and the expense of implementing due diligence steps throughout each process of their operations can be a major concern when evaluating due diligence protocols.

The solution: In reality, the legal repercussions of non-compliance are much more expensive than taking the proper due diligence steps to maintain regulatory compliance in the first place. The crypto exchange company Binance was recently banned from operating in the UK by the Financial Conduct Authority (FCA). The financial repercussions of losing all profits from the UK are nearly incalculable in comparison to the cost of Binance integrating the due diligence practices to remain compliant.

Work with the Experts in FinTech Due Diligence

While COVID-19 has opened up many doors for the FinTech industry, it has also increased the importance of due diligence practices and maintaining regulatory compliance. When working with a third-party financial technology organization, it can be challenging to know where to start to ensure all involved are meeting regulatory compliance. Rather than waiting for a compliance issue to surface and scrambling to retroactively perform due diligence, FinTech due diligence experts like those at IntegrityRisk will identify and address warning signs long before they damage your budget and your reputation. Work with the experts at IntegrityRisk to implement the best financial technology due diligence practices for your organization.. Contact us to get started.