FinTech Disruption and the Compliance Lag: Challenges in Supervising Non-traditional Financial Institutions

The rapid evolution of financial technology (FinTech) has transformed the global financial landscape by introducing agile, customer-centric, and data-driven solutions that challenge the dominance of traditional banking institutions. However, this disruption has exposed significant regulatory gaps, as supervisory frameworks struggle to keep pace with the complex and decentralized nature of non-traditional financial entities. This review explores the compliance lag that exists between innovation and oversight in the FinTech sector. Drawing on global regulatory experiences, market case studies, and scholarly literature, the paper examines the risks posed by unregulated or under-regulated FinTech activities, including consumer protection failures, data privacy breaches, anti-money laundering (AML) vulnerabilities, and systemic risk propagation. It further investigates the structural and institutional barriers to effective FinTech supervision, including jurisdictional arbitrage, technological opacity, and inconsistent compliance mandates. The review also evaluates emerging supervisory technologies (SupTech), regulatory sandboxes, and cross-border collaboration efforts designed to bridge the compliance gap. Through a policy-informed analysis, the article offers strategic recommendations to enhance regulatory agility, foster innovation-friendly governance, and ensure equitable financial inclusion in an increasingly digitalized financial ecosystem.