The Office of the Comptroller of the Currency has announced that it is considering applications from financial technology (FinTech) companies to become special purpose national banks.
“The OCC will move forward with chartering financial technology companies that offer bank products and services and meet our high standards and chartering requirements,” Comptroller Thomas Curry said during remarks at the Georgetown University Law Center. He explained that considering FinTech charter applications provides businesses the choice, without creating a requirement to seek a charter. Companies that seek a charter are evaluated to ensure they have a reasonable chance of success, appropriate risk management, effective consumer protection, and strong capital and liquidity.
During the past year, the number of FinTech companies in the United States and United Kingdom has ballooned to more than 4,000; in just five years investment in this sector has grown from $1.8 billion to $24 billion worldwide.
“Fintechs, while not without some risks, also can potentially deliver these products and services in a safer and more efficient manner,” Curry said. “Merely making a charter available, does not create a requirement to seek one. Nor does it displace the other choices a FinTech company may have—for example, seeking a state bank charter in a state that makes one available or to continue operating outside the banking system. A company’s choice to pursue a national charter should be driven by the company’s business model and strategy on how best to serve their intended customers.”
“Through the chartering process, the OCC can fully explore how the proposed bank’s policies, procedures, and practices are designed to protect individuals and small business customers,” Curry explained. “Many will choose to partner with existing banks or provide services to banks and other financial companies, but some will seek to become a bank. In those cases, it will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed.”
There are, however, concerns that will need to be addressed including matters of consumer protection and financial inclusion, regulatory fairness, and supervisory rigor. Among the potential worries is that by providing a special purpose national bank charter, the OCC is “tipping the balance of competition by allowing special purpose banks to compete with full-service banks without assuming any of the responsibility,” Curry said. “But, the reality today is that the 4,000 FinTech companies out there are already competing with national and state banks, without regard to any of the national bank responsibilities and under a patchwork of supervision. Granting national charters to the companies who desire and warrant one doesn’t weaken the competitive position of existing banks or the dual banking system.”
In some ways, he suggested, the plan "levels the playing field because statutes that by their terms apply to national banks would apply to all special purpose national banks, even uninsured ones.” This would include regulations on legal lending limits and limits on real estate holdings.
“I have made it clear that if the OCC grants a national charter in this area, the institution will be examined regularly and held to the high standards the OCC has established for all federally chartered institutions,” Curry said.
Accompanying the announcement, the OCC published a paper discussing the issues and conditions that the agency will consider in granting special purpose national bank charters. The paper is available on the agency’s website and comments may be submitted through Jan. 15, 2017.