12.21.2016 The OCC Will Begin Considering Fintech Charter Applications

Last October, the Office of the Comptroller of the Currency (OCC) announced that it planned to establish a new Office of Innovation that would be dedicated to responsible innovation in the financial technology, or fintech, sector.

When the office begins operations sometime during the first quarter of the year, it will begin considering charter applications from fintech firms to become special purpose national banks. Doing so will create a national regulatory framework for fintech companies.

In the Public’s Interest

In announcing its intention to consider fintech charter applications, the OCC said it believes doing so will be in the best interest of the public. “It is clear that fintech companies hold great potential to expand financial inclusion, empower consumers, and help families and businesses take more control of their financial matters,” said Comptroller of the Currency Thomas J. Curry in a speech at the Georgetown University Law Center in December.

By considering applications for charters from fintech firms on a case-by-case basis, the firms will have a choice rather than being required to seek a charter, Curry noted. “Companies that seek a charter are evaluated to ensure they have a reasonable chance of success, appropriate risk management, effective consumer protection and strong capital and liquidity,” he said during the speech at Georgetown University.

Granting a national charter for fintech firms will shift supervision and oversight of fintechs from the state to the federal level. So it’s not too surprising that state regulators have come out in opposition to this plan.

“Rather than adapting our financial system to the possibilities enabled by technology, the OCC would put a stop sign on innovation through a regulatory regime that favors the entrenched over the emerging, circumvents consumer protection, and weakens the dual banking system,” said the President and CEO of the Conference of State Bank Supervisors (CSBS) John W. Ryan in a recent press release.

The CSBS cited specific concerns about the OCC’s fintech charter plans in a formal comment letter it submitted to the OCC last fall. Among these concerns are distortion of the marketplace through centralization of regulatory authority for non-depository activities and the fact that it believes state regulation of fintech firms better supports financial services innovation.

Banks Also Object

Commercial banks have also voiced opposition to the OCC’s fintech charter plans. Their main concern is that this would create an uneven playing field between nonbank online lenders and traditional commercial banks. For example, some experts believe that fintech firms would not be subject to many laws and regulations that traditional banks are subject to, including the Community Reinvestment Act (CRA).

In a recent press release, the President and CEO of the Independent Community Bankers of America (ICBA) Camden R. Fine stated: “ICBA continues to have serious concerns with the establishment of a limited ‘fintech’ charter for nonbank online lenders. ICBA has been deeply concerned that nonbank online lenders’ lack of oversight has provided them with regulatory advantages over other institutions — such as highly regulated community banks — while putting consumers and the financial system at risk.”

Meanwhile, many in the virtual currency industry have voiced support for the OCC’s fintech charter plans. The Coin Center, a nonprofit organization that focuses on policy issues surrounding virtual currencies, praised the OCC in a comment letter it submitted to the OCC.

“We have too much overlapping and incongruous regulation thanks to our state-by-state approach to money transmission licensing,” wrote the Coin Center’s Director of Research Peter Van Valkenburgh in an article published on the Coin Center’s website. He pointed out that there’s only one regulator in the UK. “That’s a lot easier than some 53 states and territories along with a handful of federal agencies,” he wrote in the article.

Learn More or Comment

The OCC has published a whitepaper on its website that explains the issue of a national fintech charter in more detail — you can download it here. The OCC is accepting comments through January 15, 2017, which you can send to specialpurposecharter@occ.treas.gov.

We’re interested in hearing from you. What do you think about the OCC’s plans to begin considering charter applications from fintech firms? Send me an email at steven@lendtrade.com.