Embedding Compliance by Design

Embedding Compliance by Design

by Andrew Grant

When building a company, taking a compliance-first approach is not a regulatory burden - it’s an opportunity. By proactively embedding compliance into your company’s DNA, founders can save substantial time, money, and headaches while building customer and partner trust.

For example, in fintech, the regulatory environment is rapidly evolving across verticals, including virtual assets, payments, lending, artificial intelligence, and privacy. Regulators, from the CFPB to prudential banking regulators to state regulators, are grappling with how new technologies or approaches to existing systems fit within an often slow-moving regulatory structure. For example, banks that service fintechs  – feeling this increased scrutiny – expect greater compliance capabilities from their fintech partners. Companies that adopt a compliance-based focus will be better able to adapt to changing regulatory demands. Further, if parties are interested in buying the company in the future, having existing compliant processes can simplify the due diligence process while potentially creating greater purchaser confidence. Put another way, companies using compliance readiness to stand out from competition create, in essence, a moat. 

For founders, this approach requires compliance to be built into the fabric of its strategic planning, not just at the product level but across the organization. The following concepts can help founders assess how they can incorporate compliance by design into their products:

1. Setting compliance budgets early;

2. Identifying how best to staff for compliance;

3. Embedding compliance in the company’s; culture and values;

4. Adopting a proactive stance towards the evolving regulatory landscape.

The last thing a company wants to do as it expands is to retrofit compliance onto existing processes. At best, it’ll be a clunky integration. At worst, it’ll require a significant pivot, which will be costly in time and money, and also potentially missed opportunities.

Setting Compliance Budgets

Compliance considerations should be baked into budgets as soon as startups begin drafting business plans and financial projections. Set aside dedicated resources not just for near-term regulatory needs but future hiring and growth. The company’s industry will help dictate what needs these may be. For example, if your company is focused on payments, understanding the regulatory obligations and any private network requirements will be imperative to scaling. 

Identifying How to Best Staff for Compliance

Staffing for compliance does not necessarily mean internally hiring compliance personnel. This will be dictated by where the company is in its growth, what industry it is in, and what potential partners require. However, regardless of what stage a company is at, it should be engaging somebody to assist with embedding compliance into product design. This can include working with compliance consultants, outside counsel, or having internal expertise at the outset. Bringing on people to help build compliance early – even if product development seems more urgent – can help mitigate the risk of major pivots later on.

Embedding Compliance in the Company’s Culture and Values

For early-stage companies, compliance should not treated as an isolated function owned solely by legal and risk teams. Executives and founders must set the tone for prioritizing not just innovation but equal responsibility towards consumers and partners. This means compliance discussions should hold the same standing as product roadmaps or funding rounds in board meetings and leadership agendas. Resources must follow rhetoric as well.

Likewise, fostering a collaborative culture where all employees feel empowered to ask good faith compliance questions builds shared ownership. For example, if an engineer or marketer flags a potential data handling issue or privacy vulnerability, such signals should be rewarded, not silenced. Embedding this ethos early helps compliance concerns surface rapidly as fintechs scale.

Adopting Proactive Stance Towards Changing Regulations

With fintech poised as one of the most dynamic regulatory spaces of the next decade, relying on static interpretations of existing policies could create substantial risk. Early stage companies must build an intrinsic ability to expect new rules, directives, and legal interpretations from not only regulatory authorities but also their partners...then prepare accordingly.

This means market and competitor monitoring must focus on the legal and policy environment. Founders should empower business development staff, technical teams, and product leaders to flag relevant regulation shifts that may impact the company’s product.

Another possible step is stress-testing new offerings or markets against hypothetical regulatory scenarios. This approach allows companies to pressure test readiness and budgets for likely developments. Companies with flexible frameworks that rapidly adapt to new rules can help maintain their advantage.

Conclusion

Ultimately, taking a compliance-first approach and baking it into strategic planning establishes resilience and readiness for the future, while scrambling to retrofit compliance only breeds business risk.

Disclaimer: The information in this blog post ("post") is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice of the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient's state, country or other appropriate licensing jurisdiction.