On December 2, in a speech at Georgetown University in Washington, DC, Comptroller of the Currency Thomas Curry unveiled his proposed plan for financial technology (“fintech”) companies to have the option of obtaining a special purpose national bank charter to provide banking products and services. The OCC simultaneously also issued a paper entitled “Exploring Special Purpose National Bank Charters for Fintech Companies” and invited the public to submit comments by January 15, 2017.

The Office of the Comptroller of the Currency (OCC) charters and supervises banks formed under the National Bank Act. In his speech, Comptroller Curry stated that the special bank charter would be available for fintech companies that engage in one of three core banking activities: receive deposits, pay checks or lend money.

Comptroller Curry in his remarks also addressed directly the concerns of states regarding the application of state banking and consumer protection statutes to these special purpose banks. In the United States, banks can be chartered by a state or the OCC, and national banks also are exempt from certain state statutes. Comptroller Currency was emphatic on this point:

State law applies to special purpose national banks in the same way and to the same extent as traditional national banks. Examples of state laws that generally apply to national banks include laws on anti-discrimination, fair lending, debt collection, taxation, zoning, criminal laws, foreclosure, and torts. In addition, any other law that only incidentally affects national banks’ federally authorized powers to lend, take deposits, and engage in other federally authorized activities also still apply. The OCC has taken the position that state laws aimed at unfair or deceptive treatment of customers also apply to national banks. The state laws that typically do not apply are those that impose licensing requirements on a company in order to engage in certain types of business.

The paper issued for comment includes, among other topics, the OCC’s “baseline supervisory expectations” for any company wanting to obtain the special purpose fintech national bank (“fintech national bank”) charter:

  • The entity must submit a detailed, well-developed and comprehensive business plan, which clearly sets out the reasons for applying for the charter
  • The fintech national bank will be expected to have a governance structure that is commensurate with the risk and complexity of its proposed products, services and activities, with the expertise, financial acumen and risk management necessary to ensure its safety and soundness
  • The fintech national bank will be required to begin with and maintain capital and liquidity levels commensurate with the risk and complexity of its proposed activities, including taking into account the many activities that these fintech entities may conduct that are not on a bank’s balance sheet
  • The fintech national bank must demonstrate that it has identified and can manage its compliance risks, with a top-down enterprise-wide commitment to compliance with applicable laws, regulations and supervisory guidance, commensurate with its proposed activities.
  • The OCC must ensure that fintech national banks treat customers fairly and provide fair access to financial services; for example, with respect to a special purpose fintech national bank that engages in lending activities, it will need to explain its plan for financial inclusion and fair access to financial services and fair treatment of customers
  • The business plan also must provide alternative business and recovery strategies to address best-case and worst case scenarios that evaluate the financial effects of severe stress that may affect an entity and options to remain viable under such stress; as well as also possibly providing a clear exit strategy to voluntarily close the bank if necessary.

Because these banks likely will not carry federal deposit insurance which would allow the bank to be placed into receivership with the Federal Deposit Insurance Corporation (“FDIC”) in the event of an involuntary closure, the OCC will have to take on that role with respect to an uninsured national bank. The OCC recently proposed regulations regarding receiverships of uninsured national banks; the OCC  requested comment on the utility of the proposed regulations in the receivership of an uninsured fintech national bank.

State regulators were quick to react to the OCC’s proposal. Maria T. Vullo, superintendent of the New York Department of Financial Services (“DFS”) which has been positioning itself as a proactive regulator in the fintech arena, issued a statement the same day stating the opposition of the DFS to the OCC’s proposal, emphasizing its concern in protecting consumers:

State regulators, like DFS, are best positioned to continue to protect consumers and ensure that dynamic service providers like fintech firms will continue to flourish within an appropriately tailored regulatory regime. History has demonstrated that states, not the federal government, have the requisite knowledge and experience to effectively regulate nondepository financial service providers and guard against predatory and abusive practices.

The Conference of State Bank Supervisors, the trade association for US state bank regulators, echoed the DFS concern for consumers in its statement also issued December 2, and raised additional questions about the OCC’s legal authority to issue such a charter, and the possible distortion of the marketplace of such a charter.

Click here to access the Norton Rose Fulbright Knowledge webpage on “FinTech law and regulation: blockchains, distributed ledgers, smart contracts and cryptocurrencies.”