OCC Opens the Black Box on Bank Charter Denials

For FinTechs weighing whether to become banks, the biggest obstacle arguably has been understanding where regulatory standards have tripped up other applicants.

The Office of the Comptroller of the Currency is attempting to narrow that information gap.

In guidance issued in late June, the OCC clarified how it will process filings under its existing licensing regulations, including applications for de novo national bank charters. Although the agency described the announcement as a clarification of established procedures rather than a policy change, it also outlined a more transparent approach to unsuccessful applications.

Going forward, the OCC said it plans to make denial decisions public so the industry can better understand how the agency applies its statutory and regulatory standards.

The announcement comes as interest in new bank charters continues to reappear after several years of subdued activity. Organizers continue to pursue de novo institutions for a variety of business models, reflecting a broader view among some FinTechs that direct federal supervision can offer greater long-term control than relying exclusively on sponsor-bank relationships.

A national charter offers advantages that extend beyond regulatory status. Depending on an institution’s business model and approvals, it can provide a single federal supervisory framework, expand lending and deposit capabilities, reduce dependence on third-party banking partners and give institutions greater authority over product development and customer relationships.

More than a dozen applications are pending.

“They want to provide 21st-century solutions to their clients and customers,” Rodney E. Hood, former acting comptroller of the currency, told Competition Policy International (CPI), a PYMNTS company, in an interview published in January. “They recognize the strength and vitality that comes from a national bank charter.”

Charters also carry substantial responsibilities. Capital requirements, corporate governance, compliance management, operational resilience and risk oversight become core supervisory expectations rather than contractual obligations managed through a partner bank.

Transparency May Matter as Much as the Process

Much of the OCC’s guidance focuses on readiness before an application reaches substantive review. Per the guidelines, filings must contain sufficient information from the outset to allow regulators to evaluate statutory and regulatory requirements. Applications that omit required financial information, biographical information or other necessary documentation may be returned as materially deficient before meaningful review begins.

The expectations are especially detailed for de novo charter applicants.

Organizers should have fully defined their proposed products and services, explained how those offerings will operate in practice and demonstrated that governance, risk management and compliance systems are capable of supporting them, according to the OCC. Applications that fail to establish those foundations may be returned rather than advanced through the licensing process.

Under the new approach, denial decisions will be published so banks, FinTechs, investors and advisers can see how the OCC evaluated a proposal against applicable legal and supervisory standards. The agency also said a denial does not prevent an applicant from submitting another application in the future.

Over time, decisions could develop into a practical body of guidance for future applicants. Institutions considering a charter may gain a clearer understanding of supervisory expectations before committing the time and expense required to prepare an application.

The additional visibility also changes the calculation for applicants.

A public denial is no longer simply a private regulatory outcome. It can become part of an institution’s public record, available to investors, business partners and competitors. That possibility is likely to encourage firms to spend more time validating governance structures, documenting risk controls, refining compliance programs and demonstrating operational readiness before filing.

For traditional financial institutions and FinTechs evaluating whether to pursue a charter and broaden efforts in digital banking, greater visibility may eventually prove as significant as the licensing decision itself.