On March 15, 2017, the Office of the Comptroller (OCC) released a licensing manual discussing how it plans to evaluate and supervise Financial Technology (FinTech) companies seeking a special purpose bank charter. The document “offers a road map to applicants on how the agency plans to address issues ranging from capital requirements to financial inclusion plans and supervision.”1 It outlines how the OCC will “apply the licensing standards and requirements in existing regulations and policies to FinTech companies.”2 Along with the supplement, the OCC also published their response to more than 100 comment letters related to an OCC whitepaper published in December 2016 titled “Exploring Special Purpose National Bank Charters for FinTechs.”3

Overview

Within the supplement, the OCC confirmed they will be considering applications for special purpose national bank (SPNB) charters for FinTechs. The SPNB charter will provide the following:4

  1. A framework of uniform standards and supervision for companies that qualify;
  2. The optionality for FinTechs to offer banking products and services under a federal charter, operate under federal law and further ensure consumer protection;
  3. A promotion of growth and strength in the financial system by providing a path for FinTechs to become national banks.

The supplement explains the OCC’s approach to the chartering process and initial steps for FinTechs seeking a SPNB charter including applicable licensing procedures, prefiling steps and filing application requirements.

Furthermore, the supplement sets the guiding principles the OCC will use to evaluate an application to establish an SPNB charter including:5

  • Maintaining a safe and sound banking system
  • Encouraging a national bank to provide fair access to financial services by helping to meet the credit needs of its entire community
  • Ensuring compliance with laws and regulations
  • Promoting fair treatment of customers, including efficiency and better service

In addition and according to the requirement, a FinTech should “reasonably be expected to achieve and maintain profitability and approving its charter [must] foster healthy competition.”6

After a FinTech company submits an application, the OCC will grant approval of a charter application in two steps:7

  1. Preliminary conditional approval – the OCC will grant a preliminary approval determination if the application has specified “standard requirements and enforceable supervisory conditions” set forth in their business plan. A preliminary conditional approval does not guarantee final approval, but does provide the company the assurance that the application has passed the first phase of OCC review.
  2. Final approval – once a final approval is received from the OCC and a charter has been issued, the bank can begin to conduct banking businesses. The OCC will supervise the SPNB similar to other national banks including scheduled supervisory cycles, on-site examinations and periodic off-site monitoring.

The supplement also reflects the OCC’s consideration of comments received on its December 2016 paper discussing issues associated with chartering FinTechs and has a 30 day public comment period; they will accept comments on the supplement through close of business April 14, 2017.

Impacts to Industry

The most significant impact for FinTechs will be the creation of a clear set of national standards, hence removing the state-by-state licensing requirements. This gives FinTechs a single point of contact, the OCC, for visitation and requirements. However, by holding FinTech SPNBs to the same standards as other banks, regulations including the Bank Secrecy Act (BSA), economic sanctions administered by OFAC, anti-money laundering (AML) laws, Dodd Frank Act (consumer protection provisions), and the Federal Trade Commission (FTC) Act will at minimum apply and should be considered by the FinTech firms prior to applying for charter.8

In addition, the creation of national standards and removal of state-by-state requirements for FinTechs will increase competition throughout the industry, extending their reach and removing traditional banks’ competitive advantage as FinTechs will no longer have to clear through a traditional player. That chartering process will also likely increase consumer and investor confidence levels in FinTech business models.

However, FinTechs will need to submit extensive business plans that include financial projections, risk analysis and details about how they would manage changes to their original plan, like different growth rates or operating costs.9 The standards for charter application are both demanding and time consuming, potentially inhibiting FinTech innovation.

References

  1.      “OCC pulls back curtain on fintech charter requirements,” American Banker, March 15, 2017. Access at: https://www.americanbanker.com/news/occ-pulls-back-curtain-on-FinTech-charter-requirements
  2.      Ibid
  3.      Ibid
  4.      “Evaluating Charter Applications From Financial Technology Companies” Office of the Comptroller of the Currency, March 2017. Access at: https://www.occ.gov/publications/publications-by-type/licensing-manuals/file-pub-lm-FinTech-licensing-manual-supplement.pdf
  5.      Ibid
  6.      Ibid
  7.      Ibid
  8.      “Exploring Special Purpose National Bank Charters for Fintech Companies” Office of the Comptroller of the Currency, December 2016. Access at: https://www.occ.treas.gov/topics/bank-operations/innovation/comments/special-purpose-national-bank-charters-for-fintech.pdf
  9.       “U.S. Agency Invites FinTech Firms Into Special Bank Charter” Bloomberg, March 15, 2017. Access at:  https://www.bloomberg.com/news/articles/2017-03-15/u-s-agency-to-invite-fintech-firms-into-special-bank-charters

Newsletter Author: Samantha Regan,Samantha Cramer,Nghi Pham

Newsletter Contact Person: Nghi Pham

Visit www.accenture.com/RegulatoryCompliance for latest insights on regulatory remediation and compliance transformation.

Disclaimer

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