Following up on its unveiling of a proposal for financial technology (fintech) companies to have the option of obtaining a special purpose national bank charter, the US Treasury Department’s Office of the Comptroller of the Currency (OCC) released on March 15, 2017, a draft supplement (Supplement) to its standard Licensing Manual discussing what fintech companies should expect during the chartering process. You can see our December 12, 2016, blog post on the OCC’s fintech charter proposal here.
The Supplement was developed after reviewing the comments received on the proposal and while it is unusual for the public to comment on an internal manual such as the Licensing Manual, the OCC announced that it will take comments on the supplement through April 14.
There are several varieties of special purpose national banks such as national trust banks engaged solely in trust activities. The Supplement uses the acronym SPNB to denote a national bank that engages in one of the core banking functions (taking deposits, paying checks, lending money) but does not take “deposits” that are insurable by the Federal Deposit Insurance Corporation. This Supplement applies only to fintech companies applying for a SPNB.
Generally speaking, the chartering process is the same for every proposed national bank, but the Supplement notes in several places items specifically applicable to fintech SPNBs, including the following:
- Fintech companies seeking an SPNB charter must make an initial inquiry to the OCC’s Office of Financial Innovation, which is the OCC’s primary point of contact for fintech company questions
- Fintech SPNBs that will lend or provide financial services to consumers or small businesses must demonstrate a commitment to financial inclusion, and will have to develop and implement a Financial Inclusion Plan (FIP)
- Some activities in which a fintech SPNB may engage may not have been previously approved as permissible for national banks, so an applicant for a fintech SPNB must be prepared to provide a legal analysis as to why those activities should be seen as permissible for national banks
- The OCC will expect the organizers, managers and/or directors of a fintech SPNB to have the relevant experience with the specialized products or services the fintech SPNB will offer
- Traditional minimum required risk-based capital and liquidity requirements may be insufficient for fintech SPNBs with limited on-balance sheet assets or nontraditional strategies, so the OCC may consider other benchmarks to evaluate a fintech SPNB’s capital adequacy and establish capital and liquidity requirements tailored to its specific risk profile and business plan
Both the Conference of State Bank Supervisors, the trade association for state bank regulators, and the New York State Department of Financial Services quickly issued press releases criticizing the Comptroller’s plan to move forward with his fintech SPNB initiative.