Hsu: ‘Synthetic Banking Providers’ Should Adhere to Bank Regulations 

Acting Comptroller of the Currency Michael Hsu today warned that the “rebundling of banking services by fintechs and the fragmented supervision of universal crypto firms pose significant medium- to long-term risks to consumers, businesses and financial stability.” In remarks at an industry event, Hsu noted that the proliferation of these nonbank “synthetic banking providers,” as he called them, could give rise to “run risk”—where consumers withdraw money from an financial firm in large numbers—and regulatory arbitrage.

To address these issues, Hsu said, “we need to remove the disparity between the rights and obligations of banks and the rights and obligations of synthetic banking providers by holding SBPs to banking standards.”

Hsu also addressed several possible reasons why more SBPs have not sought banking charters, including that “regulators have been unpredictable with regards to chartering new banks and approving fintech acquisitions of banks.” He stressed that “having a clear, shared approach to the bank regulatory perimeter, and leveling up our understanding, policies, and staffing related to emerging technologies can help address this challenge.”

Finally, he announced that the OCC has completed its review of recent charter applications and cryptocurrency-related interpretive letters, and said that “in the coming weeks, OCC determinations and feedback to bank charter applicants will be communicated.” The agency also recently completed a “crypto sprint” in partnership with the FDIC and Federal Reserve and would communicate those findings in the near future. “The content of these communications—on the chartering decisions, interpretive letters, and the crypto sprint—will be broadly aligned with the vision for the bank regulatory perimeter laid out here today,” Hsu said.

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