Today, the Office of the Comptroller of the Currency (OCC) released their long-awaited supplement on the new Fintech Charter. They officially announced the new charter back in December and began a 45-day open comment period. They received over 100 comments and addressed many of these comments in this supplement.
The 16-page draft licensing supplement provides more details on the new Fintech Charter and is expected to be a supplement to the existing OCC licensing manual. They addressed issues such as capital requirements, liquidity, financial inclusion plans, consumer protection and the application process.
First and foremost the OCC Fintech Charter is about encouraging innovation in finance. The OCC discussed that directly in the supplement:
The OCC has long supported innovation in the national banking system. Federally chartered institutions have continually sought new approaches to meet the needs of customers and an evolving marketplace. It has been and remains the OCC’s role to encourage and support institutions’ efforts to engage in responsible innovation to meet the needs of consumers, businesses, and communities. The OCC’s decision to issue the draft Supplement is consistent with that support. It is also one component of an initiative that began in 2015, when Comptroller of the Currency Thomas J. Curry announced the agency’s efforts to better understand innovation occurring in the financial services industry and to develop a framework to support responsible innovation in the federal banking system.
The Fintech Charter has received a mixed reception on Capitol Hill to say the least. The House Financial Services Committee sent a letter to Comptroller Curry last week warning him to not proceed with haste in pushing this new charter through before his term expires on April 9. The timing is interesting because they also announced today a new comment period on this supplement which is open until April 14. President Trump has not nominated a new Comptroller yet and Thomas Curry can serve until his replacement is confirmed. Of course, we have no idea if the new Comptroller will be a supporter of this Fintech Charter or not.
Reading through the supplement the OCC have left themselves with a lot of leeway in dealing with individual fintech companies that apply for the new charter. Regarding capital requirements they acknowledge many fintech companies do not have large balance sheets:
The OCC acknowledges that the minimum capital requirements set forth in 12 CFR 3, which measure regulatory capital levels relative to an entity’s assets and off-balance-sheet exposures, may not be sufficient for measuring capital adequacy for some SPNBs [Special Purpose National Bank].
There is no detail on what these other requirements might entail leaving the OCC room to decide this on a case by case basis. Similarly with liquidity requirements, the OCC says that it “would consider any applicant’s specific business model when evaluating its liquidity profile and liquidity risk management”.
There are several guiding principles the OCC followed in implementing the charter. It promised not to allow the inappropriate commingling of banking and commerce, nor to sanction products with predatory features or facilitate “light-touch” supervision of companies applying for the new charter. The OCC is also fully aware of the protections that need to be in place for both the consumer and the small business owner. They address these concerns directly in the supplement.
The industry as a whole remains in support of the Fintech Charter with the Marketplace Lending Association executive director Nat Hoopes reiterating his organization’s support for the charter at LendIt USA earlier this month. I am also still very much supportive of the charter and I believe the industry needs this.
The reality is that we have an extremely fragmented regulatory system for fintech today, one that is certainly not encouraging innovation. We need to do something about this and I think the OCC effort is a step in the right direction.