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By: Vishal Narula, Rohan Lakhaiyar
09 Jun 20265 min read
We are witnessing a renewed focus on the broader regulatory, tax, and governance risks facing the fintech sector, especially following recent enforcement actions involving entities in India's fintech ecosystem. As fintech platforms scale, compliance risks increase exponentially, extending beyond GST into interconnected areas such as payments, financial crime, data, KYC compliance, and governance, all overseen by multiple regulators. In this environment, compliance responsibility no longer rests with a single function; it spans management, boards, operational teams, technology systems, and third-party networks.
What makes these actions particularly significant is that regulators are increasingly viewing such matters not only as failures of governance, systems and controls but also through the lens of intent. In many cases, the issue may not be deliberate evasion but rather systems that are not designed to capture or report transactions appropriately on a large scale. However, when transaction volumes and structures become complex, governance or oversight gaps can quickly be perceived as attempts to bypass regulatory requirements.
As a result, even unintentional compliance gaps can rapidly escalate into coercive enforcement matters. Increasingly, regulators are assessing not just financial risk but also governance quality and operational resilience, making the strength of oversight and controls a key differentiator between supervisory action and aggressive enforcement.
The developments reflect a broader regulatory shift toward coordinated enforcement across the fintech ecosystem, extending beyond GST into wider tax, payments, anti-money laundering and financial crime frameworks. As a result, a compliance gap in one area is no longer viewed in isolation - it can become the 'entry point' for a broader, multi-regulatory investigation. Regulatory systems are now working together across different frameworks like never before, increasingly enabling parallel or linked investigations where identified issues become positive red flags for enforcement.
In other words, it significantly reduces the likelihood that transactions escape scrutiny. Even routine customer KYC mismatches, reconciliation gaps or accounting errors can, in certain cases, contribute to broader regulatory reviews, including indirect-tax investigations. Recent regulatory measures and evolving tax frameworks around digital transactions have heightened scrutiny on financial intermediaries handling large-scale payment flows.
The implication is clear: enforcement is no longer siloed. A gap identified under one regulatory framework can quickly become the trigger for broader scrutiny across tax, payments, governance and financial crime regulations.
A key concern emerging across the fintech industry is that many non-compliance issues are unintentional and driven by system design. In high-volume, multi-party ecosystems, regulatory outcomes are often shaped by how systems are architected rather than how transactions were originally intended to operate. Operational flows are not always aligned with how regulators expect transactions to be classified, reported or taxed.
This becomes especially complex in areas such as settlement flows versus revenue recognition, where distinctions between pass-through amounts and revenue streams can create reporting inconsistencies. What may begin as a systems or structuring issue can quickly attract the lens of evasion once transaction values become significant.
Fintech regulatory compliance is no longer a back-office exercise but a boardroom priority. Regulators expect firms to demonstrate a fintech governance framework, effective controls, oversight of transaction flows across business partners, and a commitment to enforce compliance throughout their ecosystem. Compliance failures are now viewed not merely as isolated process gaps but as indicators of likely intentional profiteering.
At the same time, regulatory scrutiny is extending beyond institutions to senior leadership. CEOs, CFOs, directors, and other key managerial personnel may face direct accountability when lapses are perceived as deliberate, negligent, or indicative of weak controls. Boards and management are now expected to demonstrate that they have adequately discharged their fiduciary duties through active oversight and governance mechanisms. Under frameworks such as GST and financial sector laws, this exposure can, in certain cases, extend to criminal proceedings.
As a result, boards and management teams are expected to maintain robust controls, audit trails, escalation mechanisms and continuous monitoring across internal and third-party ecosystems. Increasingly, the distinction between a regulatory lapse and coercive enforcement may depend on the quality of governance, oversight, and documentation that support decision-making.
Given the fragmented nature of fintech operations, firms often rely on multiple systems and stakeholders operating across different platforms. Where integrations, reconciliations, or monitoring frameworks are weak, gaps can emerge across the chain, leading to limited visibility.
This makes robust onboarding, due diligence and ongoing monitoring of third parties critical. Fintechs can no longer treat partner networks as 'black boxes'; they require end-to-end visibility, audit rights and continuous compliance oversight across the ecosystem. Increasingly, regulators are expecting accountability for failures across the entire chain.
In light of this new environment, payment banks and fintechs should take proactive steps to insulate themselves. The key shift required is from periodic compliance to embedded, real-time control. You cannot fix these things after the event - compliance must be built into the transaction flow itself.
Ultimately, it is not just about enforcement - it is about a structural shift in how fintech risk is understood. Businesses cannot focus solely on one regulation, as issues in one area inevitably cascade into others.
For fintechs, the message is clear: compliance is no longer a function - it is an architecture.
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