It was an historic day for FinTech firms.

On March 15, the Office of the Comptroller of the Currency released the draft of a licensing manual for financial technology companies seeking new limited-purpose national bank charters.

The long-awaited document builds upon nearly two years of work related to what the OCC refers to as “responsible innovation.”

It details how applicants can seek a charter and what the OCC will consider as it approves or denies applications.

“While extensive regulations and policies already exist that govern the agency’s review and decision-making with respect to chartering national banks, this supplement explains how the OCC will apply the licensing standards and requirements in existing regulations and policies to FinTech companies applying for special purpose national bank (SPNB) charters,” an OCC statement says.

A final special purpose national bank charter will provide “a framework of uniform standards and robust supervision for companies that qualify,” the OCC says, adding that supervision by a federal regulator (versus a patchwork of state overseers) “would promote consistency in the application of federal laws and regulations across the country.”

Although the OCC does not typically solicit comments on procedural manuals and supplements, it will do so with this latest update. Public comments on the document can be submitted by April 14.

In evaluating applications from FinTech companies for an SPNB charter, the OCC says it will be guided by threshold principles: it will not allow the inappropriate commingling of banking and commerce; it will not allow products with predatory features, nor will it allow unfair or deceptive acts or practices; and there will be no “light-touch” supervision of companies that have an SPNB charter.

The release of the draft licensing manual was preceded by a March 6 speech by Comptroller of the Currency Thomas Curry Comptroller of the Currency at the LendIt USA conference in New York City.

“The promise of responsible innovation can outweigh that downside risk and better serve the needs of consumers, businesses, and communities nationwide,” he said. “Already, innovative products and services give consumers greater control over their financial lives. It’s likely that we have just scratched the surface, and the future holds further promise because we are at the beginning of this innovation cycle.”

“Responsible” innovation must be conducted “in a manner consistent with sound risk management and is aligned with the company’s overall business strategy,” Curry said. “Implicit in the definition are rigorous controls and governance to ensure you comply with applicable laws and regulations, provide fair access to your services, and treat your customers fairly. Building compliance and risk management into a company’s DNA, as early as possible in the evolution of your business, helps you succeed and avoid the risks of highly visible missteps.”

Curry addressed critics and their complaints of an expanded charter process. Some have questioned whether we have the authority to grant charters to such companies and the experience to supervise them.

The National Bank Act does give the OCC the legal authority to grant national bank charters to companies engaged in the business of banking, he said. That authority includes granting charters to companies that limit their business models to certain aspects of banking, “and it is not circumscribed just because a company delivers banking services in new ways with innovative technology.” Neither does the law require that a bank take deposits to qualify for a national bank charter.

Curry also pushed back against the “misperception that receiving a national bank charter is a ticket to light-touch supervision.”

“On the contrary, all national banks get regular on-site supervision by trained, highly professional examiners who assess whether the company is operating in a safe and sound manner and complying with laws that protect the consumer and make the system safer for everyone,” he said. It also means appropriate capital and liquidity standards.

Does offering federal charters to FinTech companies mix banking and commerce? Again, Curry sought to allay concerns by pledging that proposals to mix them are inconsistent with the OCC’s chartering standards and would not be approved.

“Already, innovative products and services give consumers greater control over their financial lives. It’s likely that we have just scratched the surface, and the future holds further promise because we are at the beginning of this innovation cycle.”

Thomas Curry, Comptroller of the Currency

The draft licensing manual detail the steps, procedures, and compliance efforts FinTech firms face.

There is a pre-filing stage that may include one or more formal meetings with OCC staff depending on the novelty and complexity of the applicant’s proposal. Organizers should provide the OCC with an overview of their charter proposal, including a draft of the business plan. Applicants should also include information about the qualifications of the organizers and proposed senior management.

The OCC will expect an SPNB applicant whose business plan includes lending or providing financial services to consumers or small businesses to demonstrate a commitment to financial inclusion.

An applicant for a national bank charter must publish notice of its charter in the community in which the proposed bank will be located as soon as possible before or after the filing date. They may request that confidential treatment be afforded to certain portions of the application, for example, portions containing proprietary information.

The OCC will consider whether the proposed bank “can reasonably be expected to achieve and maintain profitability and whether approving its charter will foster healthy competition.”

Evaluating an application

The OCC will consider, among other things, whether the proposed bank has organizers and management with appropriate skills and experience; has adequate capital to support the projected volume and type of business and proposed risk profile; and has a business plan that articulates a clear path and a timeline to profitability.

The OCC’s evaluation may identify specific controls or requirements that are necessary for the success of the applicant’s business plan or to ensure that chartering standards are met.

The OCC will not permit companies that are the subject of a formal investigation or enforcement action by another regulator to avoid the consequences of that investigation or enforcement action by seeking a national bank charter. A pending investigation or enforcement action may be grounds for denial of a charter application.

As with all banks, organizers, managers, and directors are critical to the success of an SPNB, the OCC says. It expects them to be well qualified, with diverse experience in relevant areas.

An applicant’s business plan should include a risk assessment that identifies and discusses the particular risks the organizers expect the proposed bank to face given its business model. Risks may include, for example, concentration risk, compliance risk, reputation risk, strategic risk, and operational risk, including cyber-security risk.

Regulatory considerations include risks related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML), consumer protection, and fair lending requirements.


One interesting aspect of the Office of the Comptroller of the Currency’s efforts to create special-purpose bank charters for FinTech firms is that the plan has attracted bipartisan criticism.
While Democrats n Congress have questioned consumer protection aspects of the charters, House Republican counterparts expressed procedural concerns in a March 13 letter to the agency and Comptroller Thomas Curry.
Among the 34 signatories was House Financial Services Committee Chairman Jeb Hensarling (R-Texas). A selection from the letter follows:
We commend the Office of the Comptroller of the currency’s efforts to recognize the evolving needs of consumers and encourage responsible innovation in its white paper: “Exploring Special Purpose National Bank Charters for FinTech Companies.” We are concerned, however, with recent reports indicating that the OCC will proceed with creating the special charter in the form of a supplement to the OCC’s licensing manual for banks, without providing the details of the charter or an opportunity for comment.
In light of the importance and complexity of the issue, the OCC should not rush this decision.
The OCC should provide a full and fair opportunity for stakeholders to see the details of the special charter, solicit feedback, and allow the incoming Comptroller the opportunity to assess the special purpose charter. As you are aware, tour five-year term of service will expire next month, in April 2017.
If the OCC proceeds in haste to create a new policy for FinTech charters without providing the details for additional comment, or rushing to finalize the charter prior to the confirmation of a new Comptroller, please be aware that we will work with our colleagues to ensure that Congress will examine the OCC’s actions and if appropriate, overturn them.

Documentation must include a description of a structured plan to provide for independent testing of the business activities, systems and controls, and compliance management requirements, including but not limited to plans for independent audits. There should also be made, available for review, a description of outsourcing and third-party risk management.

Depending on the applicant’s proposed business strategy and structure, the OCC may require an applicant to include an alternative business strategy detailing how the bank will manage scenarios when expectations—such as operating expenses, marketing costs, or growth rates—differ significantly from the original plan.

The OCC may also impose special conditions on an individual SPNB. Examples of such conditions include requiring the bank to have a resolution plan to sell itself or wind down, if necessary, and requiring the bank to adhere to specific commitments, such as a requirement to enter into an operating agreement.

The OCC expects national banks to have expertise, financial acumen, and a risk management framework that includes the “three lines of defense” model.

The structure, sophistication, and oversight of risk management systems “should be commensurate with the complexity and volume of risk a bank assumes,” the draft says.


Reaction to the OCC’s announcement have been mixed. Among those expressing concern is the Conference of State Bank Supervisors, the nationwide organization of banking regulators from states and territories.

The announcement “sets a dangerous precedent,” says John Ryan, the group’s president and CEO. “The OCC has acted beyond the legal limits of its authority, bypassed and ignored bipartisan objections from Congress, and created new risks to consumers and taxpayers. The new OCC charter preempts existing state consumer protections without a comparable mechanism to replace them. It also exposes taxpayers to the risk of inevitable FinTech failures. This is a dangerous combination.”

“The OCC charter is a solution in search of a problem,” he added, stressing that traditional state regulation limits systemic risk.

The American Banker’s Association, in a March 15 statement, was far more supportive of the move. “The manual makes clear that the special-purpose charters will be subject to all applicable banking laws and regulations. It also clarifies that the special-purpose charters will not authorize deposit-taking,” it said.

“This manual reflects the approach we’ve seen from the OCC all along, and it’s clear that this is not a ‘bank-lite’ charter,” said ABA Vice President Rob Morgan.

“The OCC has also clarified several points in response to American Bankers Association and other industry feedback.”

He stressed that the chartering process includes financial inclusion plans. Each plan must address the applicant’s proposed “goals, approach, activities and milestones” for meeting the needs of underserved individuals in its “relevant market or community.”

The manual also addresses concerns expressed about erosion of the dual system of financial supervision in the U.S. and about one-size-fits-all regulation of FinTech,” Morgan pointed out.

“This [manual] is not intended to discourage these other ways of conducting business but rather to clarify the OCC’s expectations for a particular segment of financial service providers — that is, FinTech companies seeking [a special-purpose national bank] charter,” the agency says, acknowledging that FinTech firms may continue to seek state charters, apply for full-service national bank charters or pursue partnerships with existing depository institutions.

This is a positive step for the industry,” says Marco Santori, partner with Cooley and leader of the law firm’s FinTech practice. “We are seeing unprecedented levels of speed with regard to something that can be so sweeping and its effect on industry.”

“The idea has ben kicking around for a very long time,” he added. “How do we deal with the frankly embarrassing regulatory situation in the U.S. for FinTech companies. It is only recently that the issue has gained any traction.”

The OCC approach offers an alternative to other approaches that have been continually floated. “Some folks have talked about having a regulatory sandbox [similar to the U.K.’s Financial Conduct Authority]. That is not happening,” Santori says. “I’ve never believed in a regulatory sandbox happening in the U.S., at least not a UK style regulatory sandbox, and certainly not for payment companies and lenders.”

“The speed by which this idea has gained traction and moved through OCC is unprecedented and almost everybody is happy to hear it,” Santori says. “There are those who are not happy to hear it, but I don’t think they are going to win this one. Judging by the draft, I see a lot of compliance frustrations addressed for lending companies and payment [who otherwise] wallow in state-by-state frustrations.”