Banking & Financial Institutions

Bank regulator proposes charters for financial tech companies

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The nation’s top bank regulator said Friday that financial technology companies could soon apply for charters.

Charter recognition would give startup “fintech” companies, like online lenders, a path around earning approval from each state they operate in but subject them to strict federal bank regulations.

{mosads}The Office of the Comptroller of the Currency (OCC) proposed Friday how fintech companies could receive charters as “special purpose” banks, which must perform financial management services, receive deposits, lend money or pay checks. The regulator asked for industry and public comment by Jan. 15.

Fintech companies, which aim to offer cheaper, safer and more accessible banking services, have exploded in popularity. The industry include smartphone apps that allow users to send and receive money the same way they’d send a text, as well as online lending companies that specialize in smaller personal and business loans.

Regulating fintech companies has been complicated by their positioning across several regulatory areas. A lack of formal bank charters has meant that such firms must seek state-by-state approval and navigate what they consider a difficult intersection of federal and state banking, lending and technology laws.

Thomas Curry, comptroller of the currency, said Friday that special-use bank charters for fintech firms are “in the public interest.”

“It is clear that fintech companies hold great potential to expand financial inclusion, empower consumers, and help families and businesses take more control of their financial matters,” Curry said.

Fintech companies that seek charters would have to satisfy federal capital and liquidity requirements, making sure they’d have enough readily accessible funding on hand to settle crises. They’d also have to meet consumer protection requirements and pass an analysis of its business plan and likelihood of success.

The banking industry at large was once skeptical of fintech companies and what they consider a lack of regulation, but large banks have slowly embraced potential partnerships. A bank charter allows fintech companies to bypass or streamline bank partnerships, though Curry said not all fintech companies would need to seek charters.

Rob Nichols, president of the American Banking Association, said the OCC standards would make sure fintech companies are subject to the same regulations as traditional banks.

“This is a bank charter for fintech companies that will hold them to the same standards of safety, access and fair treatment,” said Nichols. “Maintaining high-standards is the best way to ensure customers have access to the best financial products and services.”

Smaller community banks that often face competition from fintech companies have been less receptive. Online lending companies could pose a threat to their lending businesses. 

Camden Fine, president of Independent Community Bankers of America, said the trade group has “serious concerns” about the OCC proposal.

“A fintech charter poses risks to taxpayers and the financial system by endowing these nonbank companies with a federal bank charter,” he said.

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