The U.S. Office of the Comptroller may soon grant bank charters to fintech firms. Comptroller of the Currency Thomas J. Curry shared plans for a far-reaching initiative Dec. 2, 2016, when the OCC released a paper titled Exploring Special Purpose National Bank Charters for FinTech Companies. In the paper, Curry reflected on the banking industry's resilience and adaptability, noting that banks themselves were once considered revolutionary.
"More than 150 years later, we have a diversified and evolving financial services industry," he wrote. "New technology makes financial products and services more accessible, easier to use, and much more tailored to individual consumer needs."
Curry also shared how much consumer behavior and demographics have changed in recent years. For example, 85 million millennials use technology-driven nonbank companies that offer products and services formerly limited to traditional banks, he stated. Some of these fintech companies are exploring whether to become banks.
"Should a nonbank company that offers banking-related products have a path to become a bank?" Curry wrote. For Maria T. Vullo, Superintendent of the New York State Department of Financial Services, the answer is no. Vullo issued a statement opposing the charter and warning of its potential harm to consumers. "New York will not allow consumer protections to fall into the void," she said.
Fintech firms that support the initiative are confident federal and state regulatory agencies would collaborate with transitioning fintech firms to ensure compliance with fair lending practices. And fintechs aspiring to become financial institutions would be subject to intensive review and a steep set of requirements, payments analysts noted.
Fintech firms applying for bank charters would need to meet exacting standards, according to the OCC. In addition to having an appropriate corporate structure, the applicants would be required to prove they engage solely in bank-permissible activities, such as payment or lending activities, and adhere to regulatory requirements set forth by the Consumer Financial Protection Bureau, Bank Secrecy Act and anti-money laundering statutes.
Curry added that the OCC would closely supervise the newly chartered firms to ensure they have implemented a sound, financially inclusive business plan; a governance structure to manage banking activities; risk management procedures; compliance procedures; capital, liquidity requirements, tailored to each firm, to mitigate potential insolvency; and disaster recovery procedures.
The OCC realizes the importance of a regulatory framework that supports and encourages innovation. And the OCC's paper encourages interaction and ongoing collaboration between fintechs and regulators as they navigate unforeseen challenges to regulatory expectations.
Curry challenged the OCC staff to work within proposed innovation-friendly guidelines on a set of prerequisites for nonbank companies applying for national bank status. Their diversity is summarized in the OCC paper, which Curry said, "makes clear that if we decide to grant a national charter to a particular fintech company, that institution will be held to the same high standards of safety and soundness, fair access and fair treatment of customers that all federally chartered institutions must meet."
Curry invited payments industry stakeholders to participate with the OCC in drafting the charter. He seeks clarification on the Community Reinvestment Act (CRA), which applies to institutions insured by the Federal Deposit Insurance Corp. Fintech firms that do not take deposits are not expected to be subject to CRA requirements but may need to comply with similar governing principles, such as "fair access," "fair treatment" and "meeting the credit needs of its community," Curry stated.
The OCC paper additionally seeks recommendations on the types of activities to include in a special purpose national bank charter. Fintechs that apply for and receive bank charters would ideally "demonstrate their commitment to financial inclusion that supports fair access to financial services and fair treatment of customers," the OCC stated.
"Public comment will help inform our consideration of these issues," Curry wrote. "We welcome your feedback on all of the issues raised in this paper and on the specific questions included at the end." The OCC will be open to public commentary on this topic until Jan. 15, 2017.
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