In a speech given on December 2, 2016 at the Georgetown University Law Center, Thomas Curry may have permanently changed the paradigm for fintech in the U.S. Curry, the Comptroller of the Currency, revealed more details about his organization's intention to create a special purpose national bank charter for fintech companies.
Reviewing regulation can be boring but in this case, it's worth studying the Office of the Comptroller of the Currency's new plan to enable fintech companies to act more like incumbent banks, offering core banking services like taking deposits and issuing loans.
So, what is the Office of the Comptroller of Currency and why is it getting involved in fintech?
Established by Abraham Lincoln, the OCC is an independent bureau of the U.S. Department of the Treasury. Its mission is to "ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations." The OCC can do that because it charters, regulates, and supervises all national banks and federal savings associations.
Makes sense. But, what would the fintech bank charter actually accomplish?
Without national bank charters, fintech firms are generally regulated at the state level or end up partnering with chartered banks. Both options are expensive and place a heavy compliance burden on young companies. It would make sense, then, to standardize oversight of fintech firms that want to handle deposits, move money, or issue loans. The idea is that a single regulator can help simplify compliance and encourage innovation and competition.
So, that's a good thing, right?
In theory, yes. For the fintech industry, this new charter could be a bonanza for them by giving new tech firms the green light to compete more directly with the incumbent banking industry. Recognizing the challenge and opportunity of opening up financial services to more innovation, the OCC created an Office of Innovation last October. In December 2016, the OCC issued Exploring Special Purpose National Bank Charters for Fintech Companies, a white paper that attempted to clarify the organization's vision of the future of U.S. financial industry.
In theory, this banking charter would encourage broader financial inclusion in the U.S. banking industry by providing more options to the unbanked and underbanked. And because fintech firms would now be regulated nationally, similar consumer protections required of banks could be applied to younger technology firms.
Is this going to happen then?
Maybe. A variety of organizations are jostling for position in helping structure the U.S. fintech industry. For its part, the White House just issued its policy framework for oversight of the fintech ecosystem. The Consumer Financial Protection Bureau also has a role in making sure fintech companies treat consumers honestly.
The incumbents are less comfortable with all this. The CEO of the Consumer Bankers Association has stated publicly that the OCC should slow down and take a deeper, more methodical look at fintech -- much like the Federal Reserve did when its initiative of faster payments. Democrats also called for revamping of the charter to ensure predatory lenders aren't "given the blessing of the federal government". A couple of senators even cast doubt on whether the OCC has the authority to create a new type of charter like it intends to do.
Despite the sound and the fury, nothing's happened yet. The OCC has been accepting comments on its proposed fintech banking charter. The regulatory moat around banks has vastly increased since the 2007-2008 financial crisis, massively increasing the carrying costs of being a regulated financial institution. There are conflicting opinions on whether the OCC's proposed fintech banking charter accomplishes its goals of encouraging competition while protecting consumers and the integrity of the banking system as a whole.
As a new administration enters the White House in just a few days, it's not entirely clear what will happen.