Following a report on Fintech published by the US Department of Treasury that encouraged the Office of the Comptroller of the Currency (OCC) to move forward with Fintech Charters, the OCC announced it has begun accepting applications for “national bank charters from non-depository financial technology companies engaged in the business of banking.
The Treasury report told the OCC to “further develop its special purpose national bank charter” and to “move forward with prudent and carefully considered applications for special purpose national bank charters.”
The OCC Fintech Charter was first introduced by former Comptroller of the Currency Thomas Curry. The former public official was then lambasted (and sued) by both elected officials and traditional finance organizations. While the detractors cautioned against a Fintech Charter as increasing sector risk, the truth was never far from the surface as traditional finance firms feared competition and diminishing relevance in a Fintech fueled era of financial services.
“Over the past 150 years banks and the federal banking system have been the source of tremendous innovation that has improved banking services and made them more accessible to millions. The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy. The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America. Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.”
The OCC said its decision is consistent with bi-partisan government efforts at federal and state levels to promote economic opportunity and support innovation that can improve financial services to consumers, businesses, and communities. The decision was also documented in a policy statement and supplement to the OCC’s Comptroller’s Licensing Manual, published today.
In announcing the decision, the Licensing Manual Supplement states:
- Every application will be evaluated on its unique facts and circumstances.
- Fintech companies that apply and qualify for, and receive, special purpose national bank charters will be supervised like similarly situated national banks, to include capital, liquidity, and financial inclusion commitments as appropriate. Fintech companies will be expected to submit an acceptable contingency plan to address significant financial stress that could threaten the viability of the bank. The plan would outline strategies for restoring the bank’s financial strength and options for selling, merging, or liquidating the bank in the event the recovery strategies are not effective.
- The expectations for promoting financial inclusion will depend on the company’s business model and the types of planned products, services, and activities.
- New Fintech companies that become special purpose national banks will be subject to heightened supervision initially, similar to other de novo banks.
The OCC has the authority, expertise, processes, procedures, and resources necessary to supervise fintech companies that become national banks and to unwind a fintech company that becomes a national bank in the event that it fails.
- The OCC has statutory authority, regulations, and policies that govern its review and decision making with respect to chartering national banks, including special purpose national banks. That authority includes companies that engage in one of the core banking functions (paying checks, lending money, or taking deposits) and is described at 12 CFR 5.20(e)(1). That authority does not require the bank to take deposits within the meaning of the Federal Deposit Insurance Act and therefore would not require insurance from the Federal Deposit Insurance Corporation.
Additionally, qualifying Fintech companies also may apply for federal charters under the OCC’s authority to charter full-service national banks and other special purpose banks, such as trust banks, banker’s banks, and credit card banks.
Otting added that providing a path for Fintech companies to become national banks can make the federal banking system stronger by promoting economic growth and opportunity, modernization and innovation, and competition.
“It also provides consumers greater choice, can promote financial inclusion, and creates a more level playing field for financial services competition.”