Why SOC 1 Is More Than a Report – It’s Your Fintech’s First Impression

Regulatory Drivers for Banking Partners: The Interagency Guidance

In 2023, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) jointly released the Interagency Guidance on Third-Party Relationships: Risk Management. This guidance outlines expectations for how banks should manage risks associated with third-party vendors and emphasizes the importance of incorporating SOC reports into both due diligence and ongoing monitoring processes.

Banks are expected to evaluate the effectiveness of a vendor’s internal controls, review audit reports – such as SOC reports – and confirm that vendor controls are consistent with the bank’s own regulatory obligations. For fintech companies, providing a SOC 1 report is often a prerequisite for onboarding with a bank.

How Fintechs Can Use a SOC 1 to Open Doors With Banks & Enterprise Clients

Beyond meeting regulatory requirements, a SOC 1 report can serve as a strategic differentiator for your fintech. Banks and enterprise clients routinely request SOC reports during initial due diligence – often as one of the first questions asked. But it’s not just about having the report; it’s about the substance within it and how effectively it represents your business.

Selecting an audit provider with the right expertise can make all the difference. A firm that understands the banking ecosystem, regulatory expectations, and fintech operations can guide you in choosing the most appropriate report. A SOC 1 is suitable when a service organization impacts financial reporting controls.

A well-executed SOC 1 signals that risk and compliance are integrated into your business strategy – not treated as afterthoughts. This can send a strong message to banks that your fintech is both trustworthy and ready to scale.

The Hidden Costs of Low-Cost SOC Audits

Low-cost audit providers often rely on rigid, templated controls that fail to reflect the nuances of your business. They may use automation tools that don’t integrate well with your systems and assign auditors who lack deep industry expertise.

As customers and regulators increasingly scrutinize SOC reports for audit firm credibility, control relevance, and report authenticity, a budget provider might deliver a ‘clean’ report that lacks substance – falling short of client and regulatory expectations.

Breaking Down the Importance of Risk Assessments & Relevant Controls

A well-designed system of internal control is the cornerstone of a successful SOC 1 engagement. Under AT-C Section 320, management is responsible for identifying risks that could impact the achievement of control objectives and for designing and implementing appropriate controls. The process begins with a comprehensive risk assessment to define control objectives that are relevant to customers. This includes evaluating transaction processing, reporting systems, IT dependencies, and subservice organizations.

For a SOC 1 engagement, control objectives should align with the financial statement assertions relevant to user entities. These objectives must be supported by control activities that are specific, repeatable, and effective. Generic or templated controls often fall short of auditor and banking partner expectations. A well-executed risk assessment helps tailor your control environment to meet both end-user and regulatory requirements – and can lead to long-term cost savings.

At Wolf & Company, we’ve worked with fintechs that engaged audit firms who mistakenly applied templated SOC 2 controls to SOC 1 reports. Because these controls were not relevant to customers’ financial reporting processes, the resulting reports lacked value – leaving customers and their auditors unable to rely on them.

This misstep led to wasted time and resources, as customers invoked their right to audit contractual clause and conducted their own testing of the appropriate controls. SOC 1 requires a tailored approach to designing control objectives and supporting activities. The right audit partner will get it right the first time, helping you meet customer expectations and avoid costly setbacks.

Getting SOC 1 Ready: 5 Best Practices for Fintechs

Preparing for a SOC 1 audit is more than a compliance exercise – it’s an opportunity to build trust with banking partners and enterprise clients. A thoughtful, well-structured approach can help fintechs avoid common pitfalls and deliver a report that reflects the strength of their control environment:

1. Start with a readiness assessment to identify control gaps.
2. Define the scope carefully – focus on systems impacting clients’ financial reporting.
3. Choose a reputable audit firm with experience in financial services.
4. Consider a SOC 1 Type 2 report, which covers operating effectiveness over time.
5. Avoid one-size-fits-all providers – your controls should reflect your unique environment.

Why Getting SOC 1 Right Matters More Than You Think

A SOC 1 report is more than a compliance checkbox – it’s a gateway to building trust with banks and enterprise clients. The most critical element of a successful SOC 1 audit is design analysis: crafting a system of internal control that is both effective and sustainable. When done right, it saves time, reduces risk, and positions your fintech for long-term success.

Ready to get it right the first time? Partner with Wolf’s team to build a tailored SOC 1 strategy that meets regulatory expectations and earns client confidence.

Contact our team to learn more.