PaymentsCompliance: U.S. Regulator Defends Fintech Charter From State Hostility

30TH JUN 2017 | WRITTEN BY: CHRIS SIEROTY IN WASHINGTON, D.C.

U.S. federal authorities have defended plans to give fintechs an alternative to state-by-state regulation, despite mounting pressure from politicians, state lawmakers and industry insiders.

Kathy Oldenborg, director of payment systems policy at the Office of the Comptroller of the Currency (OCC), told a conference in Washington, D.C. that a limited-purpose charter for fintech companies would not mean non-banks are subject to a light-touch regulatory regime.

Speaking at the American Bankers Association’s (ABA) Payments Forum last week, Oldenborg emphasized that the proposals are about minimizing risk as well as supporting innovation.

The OCC’s broader initiative was “to signal banks that it’s okay to innovate,” she said.

“You can work with fintech companies, you can partner with fintech companies, you can buy one if you want,” she added. “There’s nothing that says you can’t work with fintech companies outside this whole chartering discussion.”

Oldenborg added that the national fintech charter proposal is about the federal agency’s support for innovation while minimizing risk.

The OCC announced its intention last year to allow fintech companies to apply for special purpose national bank charters, and in March, after reviewing public commentary, published a draft of its guide for evaluating such applications.

The non-depository charter would effectively allow non-bank companies offering bank-like services to operate under a similar national regime, subject to regulation and oversight by the OCC.

Currently, such firms would have to apply for individual licensing in every state where they wish to operate.

Rob Morgan, the ABA’s vice president of emerging technologies, said at last week’s event that the group supports the OCC’s efforts to hold chartered fintech companies to the same standards as banks.

However, the proposals have sparked outrage from regulators at state level, who fear the initiative will pre-empt their authority over non-banks headquartered in their jurisdiction.

Margaret Liu, senior vice president and deputy general counsel at the Conference of State Bank Supervisors (CSBS), said the organization believes that by proposing the limited-purpose charter, the OCC had overstepped its authority under the National Bank Act.

The CSBS and a group of state regulators filed a lawsuit in April trying to prevent the OCC from moving forward with its charter proposal.

Liu said that chartered banks have a well-developed set of rights and responsibilities, but that chartering fintech companies as banks will cause turmoil for those rights and responsibilities.

“A federal license to do business is the exception, not the rule,” Liu said.

Liu was not the only speaker to voice concerns about the OCC’s plans — which were made under former comptroller Thomas Curry — to issue national bank charters to fintech firms.

Illinois Republican Representative Randy Hultgren, who is co-chair of the House Fintech and Payments Caucus, argued there is a bigger role for Congress to play in the discussion about allowing fintech firms to operate as national banks.

“If a healthy debate in Congress leads to a change in the law specifying a new authority for the OCC to issue some sort of special-purpose charter, or fintech charter, then the people will have spoken at that point,” Hultgren said in a speech to the conference.

He said that he would welcome further debate on the OCC proposal, although added there are currently no hearings scheduled.

Jason Henrichs, co-founder of FinTech Forge, told attendees that he liked the intent of the fintech charter scheme but said the OCC risks stifling innovation.

Henrichs, who participated in a discussion on how to maximize bank and fintech partnerships, noted that fintech firms were “where all the innovation is happening.”

Oldenborg declined to comment on when the OCC will finalize its fintech charter plan or begin accepting applications.

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