Regulatory gaps in high-risk industries: Lessons for payments oversight

Scrutiny of US regulatory gaps in high-risk industries offers sobering lessons for the payments sector, which remains exposed to systemic weaknesses of its own.

Oversight failures in sectors such as chemicals and medical devices reveal the dangers of inadequate testing, fragmented standards, and lax enforcement – issues equally relevant to digital payments.

Weak Enforcement

Regulatory gaps in high-risk industries

C&EN has noted how the Environmental Protection Agency (EPA) faces backlash for weak enforcement of environmental protections within the chemical industry, with companies exploiting loopholes that put public and environmental safety at risk.

This underscores a universal truth: when regulators lack power or coordination, industries prioritise profit over safety.

The same risks arise in payments where AML loopholes, unregulated cryptoassets, or insufficient fraud protections can result in consumer harm and systemic vulnerabilities.

The controversial approval of transvaginal mesh implants illustrates the consequences of such failures and had led to the transvaginal mesh lawsuit.

Designed to treat pelvic organ prolapse and incontinence, these devices were approved despite insufficient testing.

TorHoerman Law reports that patients suffered chronic pain, infection, and organ perforation, leading to extensive legal action alleging defective design and inadequate safety evaluation.

Patients relied on FDA approvals for assurance—just as consumers rely on the approvals and licences granted to payments firms to protect their finances and data.

Corporate Responsibility

Corporate responsibility is another shared challenge.

Axios reports that public trust in the healthcare industry has significantly declined, with leaders now navigating a fragmented media landscape to restore credibility.

Similar trust deficits exist in payments, as major breaches or frauds lead consumers to question whether firms are prioritising security or merely market share.

Experts argue that without meaningful penalties and enforced transparency, companies will continue to cut corners.

Some industry leaders claim openness is the key to restoring confidence; in payments, robust public disclosures around compliance standards, transaction monitoring, and cybersecurity resilience would strengthen trust.

Fragmented State Enforcement

Fragmented state standards also undermine national enforcement in high-risk sectors, creating opportunities for regulatory shopping.

Payments face similar fragmentation, particularly in the U.S. where money transmitter licensing varies by state.

This complexity burdens fintechs while risking inconsistent consumer protection. Aligning regional and federal standards would strengthen oversight and close dangerous gaps.

Third-party audits may offer a solution.

In medical devices, independent safety assessments often reveal flaws missed or omitted by internal reviews.

For payments firms, external audits of AML controls, operational risk frameworks, and cybersecurity posture can uncover vulnerabilities before they are exploited.

Mandating such reviews would enhance systemic resilience and raise industry standards.

Recent US legislative reforms seek to strengthen regulatory authority in sectors like chemicals and medical devices, granting agencies such as the FDA broader enforcement powers.

Payments regulation is similarly at an inflection point, requiring updates to cover decentralised finance, embedded payments, and AI-driven financial products.

Outdated laws persist due to political inertia or industry resistance, but regular statutory reviews could ensure payments laws keep pace with market and technological change.

Global implications remain critical.

Sedgwick’s Recall Index showed an 8% rise in US product recalls in Q1 2024, undermining international confidence in American products.

Payments too are globally interconnected; poor standards in one jurisdiction expose others to financial crime risks.

International bodies such as the OECD and FATF can issue non-binding guidelines that incentivise reforms to maintain reputation and global market access.

Ultimately, the failures evident in high-risk industries serve as a stark warning for payments regulators.

Effective oversight demands cohesive standards, corporate accountability, independent audits, and laws agile enough to evolve with innovation—lessons no sector can afford to ignore.