OCC to Grant Federal Charters to Fintech Firms

The OCC “will move forward” with plans to provide special-purpose national bank charters to financial technology firms, Comptroller of the Currency Thomas Curry announced today. The move would help level the playing field for fintech firms that compete with banks by providing a consistent regulatory framework and promote consumer protection, Curry said.

The American Bankers Association welcomed the news. “We are strongly encouraged by the OCC’s comments on a potential special purpose charter for fintech companies,” said ABA President and CEO Rob Nichols. “This is a bank charter for fintech companies that will hold them to the same standards of safety, access and fair treatment. Maintaining high-standards is the best way to ensure customers have access to the best financial products and services.”

The OCC also released a white paper on its authority, principles and process for chartering special-purpose national banks, which it already does for uninsured trust banks and special-purpose credit card banks. Under the National Bank Act, the OCC may issue charters for any company involved in making loans, processing payments or receiving deposits.

During a Q&A session following his remarks, Curry acknowledged the wide variation in fintech companies’ business models, products and goals and added that the “diversity of approach in the fintech area” will be “the hardest evaluative aspect of the chartering process.” He emphasized that the OCC will take a tailored approach when determining whether or not to grant charters and setting capital requirements for fintech firms. Curry added that the OCC is also seeking input on how firms could be resolved in the event of failure, and that “there needs to be as part of the calculation a buffer that either reduces the risk of failure or allows for a ‘soft landing’ of that business, either through the regulatory process or through our receivership authorities under existing law.”

Curry also addressed another common concern: how to ensure that non-deposit-taking fintech companies would meet community financial needs, since the Community Reinvestment Act only applies to FDIC-insured institutions. “The OCC has the unique ability to impose requirements in some or all of these areas through the chartering process to require companies seeking national charters to support financial inclusion in meaningful ways, as appropriate for the business model and activity of a particular company,” Curry said.

The white paper further addressed the point for charter applicants engaged in lending: “[T]he OCC expects a special-purpose bank engaged in lending to explain its commitment to financial inclusion in its business plan.” The plan must identify and define the relevant market or community, describe what and how the bank will offer its products and explain how its products and services will promote financial inclusion.

In the white paper, the OCC sought comment on several further issues before it begins granting fintech charters. Questions included what capital and liquidity requirements the OCC should impose, how a fintech firm can demonstrate its commitment to financial inclusion, how fintech firms that do not lend (such as a payments provider) can demonstrate a commitment to inclusion, whether a special-purpose fintech charter would have competitive advantages over a full-service bank charter and how the OCC can ensure fintech charter applicants mitigate the unique risks they face. Comments are due by Jan. 15, 2017. For more information, contact ABA’s Rob Morgan.