Banking

OCC Wants To Give FinTechs A National Charter

FinTech companies are getting support from the Office of the Comptroller of the Currency, the main banking regulator, which wants to give FinTechs a charter.

And against that desire by the regulatory body, the charters have been defined as “limited purpose” with what American Banker termed “high standards for new entrants.”

For FinTech firms, the move toward charters is a bit of a regulatory boon, as they do not have to register to do business on a state-by-state basis and do not have to face the vagaries and hurdles of satisfying the laws and regulations on a case-by-case and state-by-state basis. The establishment of a charter would mean that a national standard would be defined for these nascent, technology-driven firms, with some ease of regulatory burden as they would have to deal, simply, with one agency in pursuit of licenses.

American Banker also noted that charter applicants will still have to hurdle some other requirements, such as the mandates tied to anti-money laundering provisions.

The onus is on FinTech firms to show that that they are engaged in what would be considered core banking areas, such as deposit receipts or money lending. In addition, noted American Banker, firms must show that they will tackle financial inclusion as part of their business plans.

The idea is designed to spark innovation in the banking industry. “Technology-based products and services are the future of banking and the economy,” OCC Director Thomas Curry said in a speech outlining the proposal, according to Reuters. Under the plan, the OCC will enable FinTechs to operate their businesses nationally thanks to a special purpose charter. Curry said the OCC is open to talks about what the terms of the charter would be. FinTech companies, noted the report, to date, haven’t been subject to a lot of banking laws because they do not take customer deposits of money. The charters, the OCC contends, will help FinTech companies reach people who are underserved by traditional banking and help them maintain consumer protections. The FinTechs that receive a charter would face regular scrutiny to ensure they are meeting the standards put forth by the OCC.

The regular examinations were applauded by traditional banking associations and trade groups. Banks have long complained that there isn’t federal oversight of online lenders. “Maintaining high standards is the best way to ensure customers have access to the best financial products and services,” Rob Nichols, the American Bankers Association’s president and chief executive, said in the report.

Meanwhile, Ken Rees, chief executive of subprime online lender Elevate, also welcomed the OCC efforts. “Given that so much FinTech innovation has gone to help give credit to people who already have it, it’s important that the needs of the truly underserved are taken into account,” he said.

Not every industry player is on board with the OCC’s proposal. The Independent Community Bankers of America (ICBA) said in a release it had “serious” concerns with giving nonbank online lenders a charter. “While ICBA supports oversight of these unregulated financial firms, a FinTech charter poses risks to taxpayers and the financial system by endowing these nonbank companies with a federal bank charter,” said ICBA President and CEO Camden R. Fine in a press release. “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. Any limited FinTech charter must hold these companies to the same standards of safety, soundness and fairness as other federally chartered institutions. Our nation’s FinTech regulatory framework should be no less stringent than that which applies to insured depository institutions to ensure a fair regulatory system that protects consumers and supports safety and soundness at these unregulated companies.”

Fine went on to say that community banks are subjected to an “unprecedented level of regulation, taxation and supervisory review,” and to ensure a level playing field, all financial institutions that offer banking services should be subject to the same standards. “ICBA looks forward to closely reviewing the OCC’s whitepaper and providing complete and formal comments to the agency,” added Fine.

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