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January 18, 2017 at 01:48 PM
The Office of the Comptroller of the Currency announced in December that it was moving ahead with special-purpose national charters for fintech firms that provide similar services to those offered by traditional banks.
OCC issued a white paper in December outlining the proposal for the fintech charters and accepted public comment on the proposal until Jan. 15. Fintech firms that take deposits, pay checks or make loans could apply for a special-purpose national charter, according to the white paper.
Several industry groups have responded in support of the plan, while some lawmakers have expressed doubt over the need for such a charter.
Financial Innovation Now (FIN), which comprises Amazon, Apple, Google, Intuit and PayPal, submitted a letter supporting the move and lauding the agency’s creation of the Office of Innovation.
“The OCC’s decision to issue special-purpose bank charters to fintech companies is recognition that the current regulatory environment must evolve to provide different options for meeting the financial needs of consumers and small businesses,” FIN wrote in the letter dated Jan. 17. It added that the charters could help “foster responsible innovation, including through partnership with other chartered institutions, and maintain traditional policies separating banking and commerce.”
Many fintech firms are subject to multiple states’ licensing requirements and regulations. FIN noted that while state-by-state monitoring may be appropriate for some firms, fintechs should have the option of a federal choice. The OCC charter would be optional for fintech firms that choose to apply for it, not a mandatory licensing requirement for all fintech firms.
FIN expressed concern that fintech firms should not be subject to a greater level of scrutiny or regulation simply because they are new. It urged OCC to tailor regulations to an individual firm’s risk and business model, a policy it already pursues in overseeing national banks.
Specific areas where OCC should tailor fintech risk metrics, according to the letter, include risk-based capital; risk analysis of products and services, which tend to be more narrow at fintechs than traditional banks; data security, to which FIN says fintech firms are especially attuned; and financial inclusion.
On this last point, FIN wrote that inclusion should not be based on geographic or physical access. The Community Reinvestment Act requires that regulators examine insured banks’ compliance with the act in areas where they have branches or a “substantial portion” of its loans are made.
However, part of what makes fintech such a powerful way to increase access to banking services is its lack of branches. FIN noted in its letter to OCC that 30% of American households are either unbanked or underbanked, according to a 2015 survey by the FDIC. However, those household have widespread (and growing) access to smartphones, making mobile banking tools an easy way to reach those consumers.
(Click here to read FIN’s letter.)
The Financial Services Roundtable and its technology policy division, BITS, submitted a letter to OCC on Friday, commending the development of the proposal.
“Just as the financial industry needs to evolve with technology and changing customer preferences, so, too, must financial regulations and the regulators themselves,” according to the letter, signed by Richard Foster, senior vice president and senior counsel for regulatory and legal affairs at FSR, and Christopher Feeney, president of BITS.
They noted that the need for a special fintech charter “is not isolated to the microcosm of nonbank fintech firms.” Traditional banks are “actively engaged in the digital transformation,” they wrote in the letter.
FSR called for balance between accommodating innovation and maintaining “the integrity of the national banking system, which has operated for over 150 years.”
