Scaling your Canadian business will bring exciting opportunities, but also some serious compliance challenges. If you don’t implement effective fintech risk management, your business may suffer from costly legal consequences.
We’re here to help you avoid legal pitfalls by guiding you on fintech risk management. Following our advice will allow you to build a strong risk management fintech framework and stay compliant.
Bank of Canada’s Requirement for a Risk Management Framework (RMF)
The Bank of Canada requires all payment service providers (PSPs) to establish and maintain an RMF. This is not just a best practice, but a formal document suite outlining how your business identifies, assesses, and manages operational risks. Your RMF must cover:
- Risk identification across all operations and services
- Assessment of potential impacts, including compliance and financial risks
- Documentation of internal controls and monitoring processes
- Clear accountability assigned to management and staff
- Ongoing testing and review to ensure effectiveness
Failing to implement and maintain this framework can put your PSP registration at risk and result in regulatory scrutiny.
Why Risk Management in Fintech is a Non-Negotiable?
Risk management in fintech is a legal requirement by the Bank of Canada. It is also essential for FINTRAC compliance and long-term business stability. Without a robust and effective Risk Management Framework (RMF) program, you risk:
- Penalties from FINTRAC and the Bank of Canada
- Investor hesitation due to compliance concerns
- Business interruptions caused by audits or license suspensions
The financial services sector is among the most regulated in the world. As you scale, so does your exposure to regulatory compliance risks, especially when expanding into multiple jurisdictions.
What Legal Mistakes to Avoid for Effective Fintech Risk Management?
Many money service businesses (MSBs), payment service providers (PSPs), cheque cashers, and crypto asset handlers make the same common mistakes when scaling their business:
- Skipping Proper MSB or PSP Registration
FINTRAC Registration for Canadian MSBs
All Canadian MSBs are required to register with FINTRAC before starting their operations, such as:
- Currency exchange services
- Payment processing services
- Virtual currency transactions
Businesses that don’t register with FINTRAC will be subject to penalties that can exceed $500,000, along with possible criminal charges. From 1st October 2025, all other businesses except MSBs are also required to enroll with FINTRAC.
RPAA Registration for Canadian PSPs
All payment service providers in Canada are required to register with the Bank of Canada under the Retail Payment Activities Act (RPAA). The regulatory act oversees how PSPs manage end-user transactions, making compliance essential.
One of the key requirements to completing the RPAA registration process is performing a pre-registration audit. Failing to meet the compliance requirements set under the RPAA can lead to fines, business closure, and other consequences.
2. Weak or Outdated AML Compliance Programs
Both FINTRAC require an anti-money laundering (AML) compliance program. Having a robust program has been a best practice for many years.
However, soon having an effective AML program will become a legal obligation, especially for Canadian fintech businesses. That’s because new AML rules will be effective from 1st October 2025 in Canada.
Incomplete or outdated policies will cause you to suffer from administrative monetary penalties and other consequences. Your risk management fintech framework will also become weak due to poor AML compliance.
3. Overlooking Regulatory Changes During Expansion
Your compliance obligations evolve alongside your business model. Common examples include:
- Adding cryptocurrency services may trigger additional reporting obligations
- Entering a new province or state could require a fresh license, e.g. businesses in Quebec must register with Revenu Quebec, besides FINTRAC
Your fintech risk management approach must consider these additional obligations to avoid business scaling mistakes. Creating a regulatory monitoring system and subscribing to FINTRAC and provincial/state updates will help you stay ahead of legal changes.
4. Poor Record-Keeping and Reporting Practices
Even if you follow procedures, weak documentation can lead to violations during a FINTRAC audit. Some practices that can help you avoid this mistake for risk management fintech include:
- Maintaining transaction records for at least five years (per Canadian law)
- Store customer due diligence and Know Your Customer (KYC) documents securely
- Ensure all reports to FINTRAC are accurate and timely
You should also stay ahead of new AML regulations by reporting transactions of $10,000 or more to FINTRAC. Good record-keeping and suspicious transaction reporting will enhance the credibility of your fintech risk management approach.
Building a Scalable Fintech Risk Management Framework
A well-structured risk management fintech plan should include:
- Regulatory Mapping - list all regulations relevant to your operations in each jurisdiction
- Compliance Expertise - maintain an internal compliance team or work with an experienced legal partner like Renno Co. & Fintech
- Staff Training - train employees on compliance protocols and legal responsibilities
- Internal Audits - conduct quarterly reviews of your AML, KYC, and licensing procedures
- Incident Response Plan - document how to respond to audits, investigations, or breaches
If you believe you cannot build a scalable fintech risk management framework yourself, collaborate with a legal partner. Renno Co. & Fintech can support your risk management fintech approach by crafting AML policies, appointing outsourced compliance officers, and more.
FAQs
What’s the Biggest Compliance Risk for Fintech Startups?
The biggest compliance risk for fintech companies is failing to complete relevant registration processes such as MSB registration, RPAA registration, and entity enrollment. These mistakes weaken your business’s risk management fintech framework.
How Often Should I Update my AML Compliance Program?
It is recommended to update your AML compliance program at least once every year or immediately after major regulatory changes. In Canada, new AML regulations will be implemented by FINTRAC on 1st October 2025. This means it is time to get a head start on developing a new AML compliance program for your fintech risk management.
Can I Outsource the AML Compliance Officer Role?
Yes, you can outsource AML compliance officers through Renno Co. & Fintech’s fractional AML services. We ensure a skilled officer with a Canadian address is always on standby for sudden FINTRAC audits and other meetings affecting your risk management fintech framework.
Does Canada Have Different Risk Management Requirements Than the US?
Yes, Canada has different risk management fintech requirements than the US because it is governed by a different regulatory authority called FinCEN. All Canadian MSBs have to follow regulations set by FINTRAC.
Develop an Effective Risk Management Framework Fintech With Renno Co. & Fintech
Scaling your business without an effective fintech risk management framework and compliance strategy is risky. You should prioritize a risk-based approach for business license, AML compliance, and regulatory tracking.
Collaborate with a fintech partner such as Renno Co. & Fintech to avoid common risk management fintech mistakes that can slow your business growth. Schedule an appointment with our legal advisors today to build a solid fintech risk management program.
