Financial technology companies are now one step closer to having the means to apply for special purpose national bank charters.
The Office of the Comptroller of the Currency on Wednesday published a draft supplement to its licensing manual, which contains existing regulations for chartering national banks.
The draft rules, which are open for comment through April 14, give guidance on how fintech companies are expected to apply for national charters and makes it clear they are subject to all the same laws and regulations as traditional financial institutions, plus additional requirements.
“This manual reflects the approach we’ve seen from the OCC all along, and it’s clear that this is not a ‘bank-lite’ charter,” said American Bankers Association Vice President Rob Morgan in a statement Wednesday.
The OCC first revealed in December that it would give fintech firms the opportunity to apply for special purpose charters, a move that experts say would free these companies from the sometimes burdensome process of having to apply for state-by-state bank licenses.
Like traditional banks seeking charters, under Wednesday’s proposed rules, fintech firms will have to arrange a prefiling meeting with the OCC along with submitting a business proposal. But the new supplement also requires fintech firms to complete more detailed risk assessments than previously required for bank charters.
Marco Santori, partner with Cooley in New York, says the new supplement is “actually pretty encouraging for most people in the industry.” He says it is positive that the OCC is moving quickly on fintech charters, which he refers to as “an old idea but a new project.”
Santori says fintech companies seeking charters will have a much easier time now that they don’t have to adhere to regulations on a state-by-state basis.
He believes the previous regulation by the states hindered innovation in the fintech payments space in the U.S., making it slow compared with other countries. “We’ve fallen behind,” he says.
The OCC’s manual, published this week, comes despite some lawmakers’ efforts to table such guidance. Two U.S. senators wrote a letter in January asking Comptroller Thomas Curry to leave regulation in this area to Congress.
“While the OCC’s leadership on these issues is indispensable, we believe that the OCC’s plan to offer alternative charters to non-bank and fintech firms as explained could upset the current financial regulatory structure,” Sen. Sherrod Brown and Sen. Jeffrey Merkley wrote in the letter. “We would urge the OCC to refrain from offering any alternative or special purpose charters.”
State regulators have also shown skepticism. Maria Vullo, superintendent of the New York State Department of Financial Services, expressed concerns about the charters in a separate letter to Curry on Jan. 17.
She wrote that charters would raise the “serious risk of regulatory confusion and uncertainty, stifle small business innovation, create institutions that are too big to fail, imperil crucially important state-based consumer protection laws and increase the risks presented by non-bank entities.”
Santori says his clients that will be impacted most by the proposed supplement will be those in lending and payments technology, as those are the two main areas considered to “engage in banking activities” in fintech so far.
Existing regulations for banks, Santori says, are limited to rules set up to prevent money laundering, but fintech companies must now submit new details about their internal controls, record keeping and cybersecurity risks.
As for whether Santori thinks the additional requirements are fair to place on fintech companies, he says, “If this fintech charter acts to pre-empt a state-by-state licensing regime, it would be difficult to do something unfair in the application process compared to the alternatives.”
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