A new White Paper from AllianceDFA and the Association of Governance, Risk and Compliance (AGRC) explores the challenges of regulatory compliance costs for micro, small and medium-sized fintechs and financial service providers (MSM-FSPs), examining the key cost drivers and identifying practical ways to make compliance more proportionate and efficient without compromising regulatory standards.
Regulatory compliance is essential to safe, trusted and resilient financial services. However, meeting regulatory obligations can create disproportionate costs and operational pressures for MSM-FSPs. Requirements relating to KYC/CDD, AML/CFT, cybersecurity, governance and regulatory reporting often demand capabilities comparable to those of larger institutions, despite smaller firms having fewer resources. Beyond direct expenditure, compliance consumes management time, specialist expertise and technology investment, potentially affecting product development and customer onboarding.
Developed through the Dialogue-to-Action Working Group convened by AllianceDFA and AGRC, the White Paper draws on discussions with fintech leaders, compliance professionals, RegTech providers, consultants and industry representatives. The assessment identified AML/CFT and Governance & Compliance Operations as the areas generating the greatest cost pressures. Participants also highlighted how limited proportionality, regulatory ambiguity, fragmented supervisory responsibilities and the high cost of accessing compliance technology and expertise can compound the burden on smaller providers.
The White Paper explores opportunities to improve compliance efficiency without weakening regulatory standards. These include shared compliance infrastructure, stronger collaboration between regulators, financial institutions and RegTech providers, regulatory sandboxes, more risk-based and technology-enabled approaches, and the development of machine-readable regulations.
Creating an environment where smaller providers can meet their regulatory obligations without facing disproportionate barriers to operating, growing and innovating is essential to a more inclusive and competitive financial services ecosystem. Affordable compliance is not about reducing regulatory standards. It is about making compliance more proportionate, predictable, efficient, and achievable while preserving strong regulatory outcomes and supporting innovation, competition, and financial inclusion.