The Office of the Comptroller of the Currency and the Conference of State Bank Supervisors
On May 19, Hsu testified before the House Financial Services Committee that he had asked agency staff to review the OCC’s actions to update the framework for chartering national banks and trust companies, and to interpret crypto custody services as part of the business of banking. He further noted that his “broader concern is that these initiatives were not done in full coordination with all stakeholders”— namely, state and other federal regulatory agencies.
The 90-day stay will provide time for the OCC to complete this broader review and allow the OCC an opportunity to coordinate with the states and other regulators, including the Federal Deposit Insurance Corp. and Federal Reserve.
Meanwhile, several pending applications and conditionally approved charters await the outcome of this review. The OCC recently granted preliminary approval of national bank and national trust bank charters to a number of fintechs, including SoFi, LendingClub, Ceridian, Anchorage, Paxos and Protego. In addition to Figure, several more applications are pending with the OCC, such as those by Oportun and BitPay, and a number of other fintechs are quietly readying their applications.
Going forward:
- Recently approved applicants should expect other regulatory stakeholders to be involved in the OCC’s determination as to whether the conditions of approval have been satisfied.
- Pending applicants should expect such stakeholder involvement in determinations as to whether to grant conditional approval.
- Future applicants should expect the OCC to consult with such stakeholders early in the application process.
This will require an even greater degree of patience from charter applicants in working through the complex and lengthy national bank chartering process. But fintech applicants should not give up. The acting comptroller is sympathetic to two distinct views of fintech chartering:
- Providing charters to fintechs may “convey the benefits of banking without its responsibilities.”
- “Refusing to charter fintechs will encourage growth of another shadow banking system outside the reach of regulators.”
This means that the OCC hasn’t withdrawn the welcome mat for fintech applicants that can demonstrate their commitment to national bank regulatory standards and the ability to operate in a safe, sound and fair manner. Fintech companies that can demonstrate a commitment to meeting the OCC's high standards, and serving their communities, should be able to make the case for entering the regulatory perimeter.
In addition to staying the course, fintech applicants should, to the extent they have not done so already and as applicable to their specific business models, consider the following recommendations.
Engage with regulatory stakeholders. There is no need to wait for the OCC to bring in the other regulatory agencies to the discussion. Regulators will welcome introductory discussions about a fintech’s history, key business lines, financial performance, ownership and the company’s interest in obtaining a banking license. This is true even if an applicant intends to apply for various approvals sequentially, as Varo did, starting with the OCC, then followed by the FDIC and Fed. It may also be wise to include the Consumer Financial Protection Bureau in this outreach.
Educate regulators on your unique business model and how you will manage the risks associated with it. Applying for a national bank charter means willingly signing up for intensive regulatory oversight by the OCC. But an applicant that will not offer insured deposits or make loans, or that will offer banking products and services through innovative technology, must take pains to educate the OCC and other regulatory stakeholders about the unique aspects of the proposed bank’s business model.
An applicant should demonstrate that it understands the risks associated with its proposed business model and show regulators how the proposed bank will manage the specific risks of the activities in which it intends to engage. Regulators themselves are working to understand how they will oversee novel businesses and may be receptive to developing new frameworks — or adapting existing frameworks — to meet the changes underway across the financial services industry.
Focus on customer needs. In addition to demonstrating appropriate risk management, a fintech applicant must show how, if granted a charter, the bank will use technological innovations to promote the availability of credit and address the financial needs of consumers and businesses in a fair and equitable manner.
Regardless of whether the bank would be subject to the Community Reinvestment Act, applicants should also work with consumer and community advocates in crafting a comprehensive approach to financial inclusion.
Seek clear timelines. The OCC’s licensing manual states that the agency “generally attempts to decide a charter application within 120 days of receipt.” But a number of applications have been pending with the OCC for far longer, and the uncertainty has real financial impacts on these applicants’ businesses. It is understandable that the change in leadership at the OCC has brought a temporary pause to chartering decisions, but an applicant deserves and should seek clarity as to when it can reasonably expect the agency to act on its application.
