The Office of the Comptroller of Currency’s desire to add financial technology firms to its regulatory repertoire, if implemented without a sufficient foundation, could stall the U.S. financial system’s path to innovation and set it back by decades.
Currently, FinTech companies must work with governments on the state level to serve their customers and stay in business. Seeing how operating on a state-by-state basis could cause discrepancies, it seems putting all FinTech companies under the supervision of one federal regulator, as the OCC is suggesting, would streamline rulemakings and enforcement.
Before coming to a quick conclusion, however, this is a situation where it is in the OCC’s best interest to follow the carpenter’s rule — measure twice, cut once.
To facilitate the next generation of banking, it is imperative the OCC take the time to make sure its new Office of Innovation attains the right level of knowledge and expertise before incorporating FinTech companies into the federal banking system.
While expanding the scope of companies eligible for a national bank charter would be good for competition, the OCC’s approach presents a few problems.
In a March 2016 white paper, "Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective," the OCC said a FinTech charter would ensure companies operate in a safe and sound manner, and consumers would be better protected by having a consistent legal and regulatory framework.
Receiving balanced and consistent guidance from regulators is critical to a healthy financial industry — something we applaud the OCC for aspiring to achieve. However, executing consistent regulation and supervision is only possible when regulators have a clear sense about the types of companies that should be eligible for a charter.
Per the white paper, it appears companies with vastly different business models, like payday lenders, marketplace lenders, and peer-to-peer payment companies, could all be eligible for the OCC’s proposed FinTech charter.
In addition, the OCC does not explain or prove why the current state-based licensing approach is wrong or incompatible with the agency’s objectives.
Even if we assume a national bank charter for FinTech companies is efficient and effective, the white paper does not provide enough information about how the OCC would regulate and supervise FinTech companies while ensuring the industry’s ability to enjoy a competitive, level playing field.
Not to mention, another paper submitted by the OCC in October 2016 noted how the agency lacked a precise rationale for their intent, while admitting OCC staff “were in need of greater awareness and expertise regarding industry innovations.”
What also makes the agency’s decision on FinTech companies surprising is how OCC staff, in the same October paper, expressed uncertainty over “whether the OCC has sufficient expertise to…supervise some emerging developments,” and recommended they “expand recruiting to reach individuals with a broader variety of skills than traditionally used by the agency.”
The goal of modernizing the OCC is well received, but the agency must take a more deliberative approach before deciding the future of a very complex and still developing industry.
Is there a better way?
A good example of how the OCC should proceed is the Federal Reserve’s initiative on faster payments. The Fed has conducted a multi-year effort, engaging people from the agency and the industry, and has pursued a process focused on collaboration and publication of its strategies for public review.
Getting feedback from consumers and industry stakeholders is paramount to understanding how certain changes will potentially impact our communities and the economy.
We live in an accelerated world where technology drives consumer demand. Adjusting to this new world means we need to act quickly, but we must do so in a manner beneficial to consumers and to the industry.
From what we know right now, unless the OCC takes time to fully understand and address the complexities of the FinTech sector, as well as its current weaknesses and strengths, their hasty decision to bring FinTech companies under the same umbrella as banks could trigger unintended consequences for consumers and the U.S. financial system – something the U.S. economy cannot afford.
Richard Hunt is the president and CEO of the Consumer Bankers Association, a leading trade association for retail banks geared toward consumers and small businesses.
The views expressed by contributors are their own and not the views of The Hill.