When fintech companies need SOC1, and when they don't?

When fintech companies need SOC1, and when they don't?

A fintech company needs a SOC 1 report if its operations directly affect its clients’ financial reporting (ICFR — Internal Control over Financial Reporting). In practice, this means any situation where processed data or transactions can alter figures in a client’s accounting records — for example, posting payments, calculating interest, or valuing assets. However, if the company provides technology-based services that don’t impact ICFR, a SOC 2 report is typically sufficient. For marketing and public purposes, fintechs often complement it with a SOC 3 report.

What SOC 1 really means for fintechs?

A SOC 1 (Service Organization Control 1) report evaluates whether a service organization’s systems and internal controls can influence the accuracy of its clients’ financial statements. It’s primarily intended for clients’ auditors and isn’t meant for public release. Fintech companies that handle financial transactions, payment processing, asset valuation, or custody operations often require SOC 1 because their activities can have a direct impact on a financial institution’s reporting data.

By contrast, a SOC 2 report focuses on operational security and data governance. It assesses compliance with the Trust Services Criteria (TSC) — Security, Availability, Processing Integrity, Confidentiality, and Privacy — ensuring that customer data is secure, available, and processed reliably.Meanwhile, SOC 3 is a public-facing summary of SOC 2, used to communicate compliance credentials in marketing materials and RFPs.

Types of SOC reports and why they matter

SOC reports come in two main versions: Type I and Type II.

• Type I evaluates the design and implementation of controls at a single point in time — essentially a snapshot of how controls are structured.

• Type II, on the other hand, examines whether those controls operate effectively over a defined period, usually six to twelve months.

For banks, insurers, and enterprise clients, a SOC 1 Type II report often serves as a prerequisite for doing business, as it provides tangible assurance that the provider’s processes are both reliable and well-controlled.

How to decide whether you need SOC 1?

The simplest way to find out is to ask:“Can my service change the numbers in a client’s financial statements?”

If the answer is yes, you need SOC 1.If no, and clients primarily care about security, availability, and privacy, SOC 2 will suffice — ideally paired with a SOC 3 to demonstrate compliance publicly.

For example, a fintech company that operates a payment or settlement system, where its data feeds directly into clients’ general ledgers, should pursue SOC 1 Type II. In contrast, providers of analytics platforms, cloud infrastructure, or CRM tools should prioritize SOC 2 Type II, focusing on data protection, uptime, and privacy assurance.

When a fintech must have SOC 1?

SOC 1 is mandatory when a fintech’s services directly influence clients’ accounting or financial reporting. Common examples include:

• Payment processors whose data feeds into financial reports

• Investment platforms that calculate asset values, interest, or fees

• Payroll systems used by publicly traded companies

• Core banking providers offering accounting and reporting modules

In these cases, even a minor error could distort a client’s financial reporting, which is why a SOC 1 audit is crucial for confirming control reliability and integrity.

When SOC 1 isn’t necessary?

Not all fintechs require SOC 1. If your company primarily focuses on storing, analyzing, or transmitting data rather than recording it in financial systems, a SOC 2 report is the appropriate choice.

This applies to cloud providers, SaaS vendors, analytics platforms, or customer service tools. For these businesses, security, business continuity, and data confidentiality are the main priorities — and SOC 2 Type II adequately covers them.

What a SOC 1 audit involves?

A SOC 1 audit focuses on control objectives tied to ICFR as well as general IT controls (ITGC). Auditors examine whether the organization’s systems and procedures are designed and functioning effectively to prevent financial misstatements in clients’ records.

The resulting report has restricted distribution, typically shared only with clients and their auditors. It’s important to note that SOC 1 does not assess broader operational security or privacy measures — those areas fall within the scope of SOC 2

The client’s role: Complementary User Entity Controls (CUEC)

SOC 1 reports also outline Complementary User Entity Controls (CUEC) — controls that clients themselves must maintain for the system to remain effective. Even the most robust SOC 1 report does not absolve clients from responsibility for their own internal checks, such as access reviews, reconciliations, or exception monitoring

Costs, timelines, and implementation strategy

Achieving SOC 1 compliance requires both time and resources. A full audit typically costs between USD 25,000 and 75,000, while internal teams invest 200–500 work hours to prepare and maintain the required documentation. Ongoing compliance and annual renewals add to the total cost.

By comparison, SOC 2 reports are usually more expensive — USD 30,000 to 100,000+, depending on scope and complexity. Adding a SOC 3 report costs another USD 5,000–15,000, mainly for marketing visibility.Type II audits typically span six to twelve months, since they require continuous monitoring and testing of control effectiveness

A practical roadmap for growing fintechs might look like this: begin with SOC 2 Type I, advance to SOC 2 Type II, and once operations start influencing clients’ financial reporting, pursue SOC 1 Type II. Finally, use SOC 3 to communicate compliance publicly and build trust.

Regulatory expectations and market practice

Financial regulators — including the FFIEC and OCC in the U.S. and the FCA and PRA in the U.K. — increasingly recognize SOC reports as a key component of Third-Party Risk Management (TPRM) frameworks. As a result, banks and insurers often require both SOC 1 Type II (for ICFR-related services) and SOC 2 Type II (for cybersecurity and operational assurance).

Furthermore, as fintech regulation expands into areas like open banking, embedded finance, and digital asset management, possessing the right SOC report has become a competitive differentiator and a signal of long-term reliability.

Choosing the right SOC 2 criteria

If your company doesn’t require SOC 1, it’s important to select the Trust Services Criteria (TSC) that best reflect your business risks. Each criterion addresses a different aspect of data assurance:

• Security — mandatory in every report

• Availability — relevant when clients expect guaranteed uptime or SLAs

• Processing integrity — crucial for companies handling transactional data

• Confidentiality and privacy — essential when managing financial or personal information

Selecting the right combination ensures stronger client confidence and simplifies vendor due diligence processes.

Conclusion

The right SOC report depends on the nature of your fintech’s services.If your operations affect clients’ accounting data, you’ll need SOC 1 — without it, major financial institutions may refuse to engage.If you’re focused on technology, data, or security, SOC 2 provides sufficient assurance that your systems protect information and maintain availability.In many cases, however, the most effective approach is to combine both reports, giving stakeholders a comprehensive view of your organization’s financial and operational controls.