API security refers to the protection of Application Programming Interfaces from unauthorized access, misuse, or data breaches. In regulated sectors like banking, fintech, and payments, APIs are the backbone of digital services — enabling systems to communicate securely and efficiently. Poorly secured APIs can expose sensitive financial data, lead to compliance violations, and damage customer trust.

Core Principles of API Security

Effective API security focuses on authentication, authorization, encryption, and continuous monitoring. These measures ensure only legitimate requests are processed while protecting the integrity and confidentiality of data in transit and at rest.

Authentication and Authorization

Strong authentication mechanisms, such as OAuth 2.0 and mutual TLS, confirm the identity of API clients, while authorization controls determine what actions those clients can perform. This approach prevents unauthorized access to sensitive endpoints.

Data Encryption

Encrypting data both in transit and at rest safeguards it from interception or tampering. In compliance-heavy industries, encryption is often mandated by regulations like the FCA Handbook.

Common API Security Threats

APIs face various security challenges that can compromise financial systems if not addressed proactively.

Injection Attacks

Attackers can exploit unvalidated inputs to inject malicious code or commands into an API request. A ResearchGate study on API vulnerability analysis outlines how unfiltered parameters are one of the most exploited attack vectors.

Broken Authentication

If authentication mechanisms are poorly implemented, attackers may impersonate legitimate users. This is particularly damaging in payment systems and customer onboarding workflows, where identity assurance is critical.

API Security Best Practices for Compliance

Adopting a layered security approach reduces risk and strengthens compliance posture.

Use of API Gateways

API gateways act as a single entry point for traffic, allowing for centralized authentication, rate limiting, and request validation. They also provide valuable logging for audit purposes, which supports compliance investigations.

Continuous Monitoring and Threat Detection

Integrating monitoring tools that detect unusual API behavior can help prevent fraud and cyberattacks. Technologies like FacctShield for payment screening and FacctGuard for transaction monitoring can complement API monitoring by identifying suspicious activity in real-time.

Regulatory Requirements for API Security

In financial services, API security is not optional. Regulations such as PSD2 in Europe, the UK’s Open Banking Standard and the Monetary Authority of Singapore’s API guidelines all require secure API implementations to protect customer data and maintain trust.

Integrating API Security into Compliance Programs

Embedding API security into a compliance program means aligning technical controls with regulatory mandates. This includes documenting API access policies, maintaining audit logs, and performing regular security assessments. Connecting API controls with solutions like FacctList for watchlist management and FacctView for customer screening can create a unified compliance and security framework.