Fintechs to get bank charters in the US, but there are caveats
Fintechs to get bank charters in the US
The Office of the Comptroller of the Currency (OCC) in the US intends to grant federal bank charters to fintechs.
These will be limited/special purpose only, and the companies will still have to comply with an array of other regulations such as Bank Secrecy Act, Community Reinvestment Act, anti-money laundering (AML) and consumer protection laws, anti-discrimination, fair lending and debt collection laws etc.
Speaking at the Georgetown University Law Center, Thomas Curry, Comptroller of the Currency, said: “The OCC will move forward with chartering financial technology companies that offer bank products and services and meet our high standards and chartering requirements.”
To apply for this charter, a company must engage in fiduciary activities, or either one of the three core banking functions: lending money, paying cheques or receiving deposits.
Fintech firms will be able to apply to a single agency – the OCC – for a licence that supports national standards, rather than registering in each US state separately and complying with different state laws.
This move is likely to face opposition from state regulators who have already called the federal charter for fintechs dangerous and unnecessary.
Furthermore, there are concerns within the US banking industry that fintechs will have the advantages – but not the obligations – of a bank.
However, Curry defended the OCC decision: “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.”
He continued: “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.”
Higher capital requirements will be enforced on fintechs, due to “off balance sheet” business activities they might be involved in.
They will also be required to develop a formal plan for failure and to have a hands-on board of directors.
Curry also suggested to set up “a formal agency policy” that would determine if the OCC grants a fintech’s application for a charter or not.
The OCC is now gathering public feedback, and will unveil the next steps on 15th January 2017.
