OCC’s New Fintech Charter is Laudable, But Value is Not Yet Clear
The Comptroller of the Currency announced on Friday that the Office of the Comptroller of the Currency (OCC) would move forward with considering applications from fintech companies to become special purpose national banks.
This has resulted in two main questions from our fintech clients:
- Should I consider applying for a bank charter?
- How hard will it be to get a bank charter?
We cannot know the full answers to these questions until the OCC finalizes its proposal to grant special purpose national bank charters to fintech companies. The current comment period does not end until January 15, 2017.
However, one thing that already is clear from the OCC’s published paper discussing the issues and conditions that it will consider in granting special purpose nation bank charters is that the expense associated with being a regulated special purpose national bank will be significant. This is not a process that will be realistic for most small fintech startups. However, for fintech companies who are comparable in size to small community banks, the special purpose charter could make a lot of sense. Offering products like mortgages, loans, and savings accounts would be easier in many ways with a bank charter.
How to Apply for a Bank Charter - Steps for Fintech Companies
The significant expense will begin with the OCC’s procedures for applying for a charter, which are described in the Comptroller’s Licensing Manual. This includes:
- Having a robust business plan that comports with the OCC’s requirements;
- Ensuring that the entity’s governance structure complies with OCC requirements;
- Submitting financial reports for organizers, directors, executive officers and controlling shareholders;
- Describing the company’s contracts, transactions, professional fees, and any other type of business relationships (especially with any third-party service providers); and
- Submitting to background investigations and field investigations.
In addition, the OCC is likely to require additional information for fintech companies concerning procedures and policies that differ from those of traditional banks.
Once a charter is granted to a fintech company, the company will then have to comply with the duties of a regulated bank. This ranges from meeting the OCC’s requirements for ongoing capital and liquidity levels to surviving ongoing scrutiny of the company’s compliance systems. While many fintech companies already are subject to regulatory requirements, few are subject to regular examinations of their compliance with these requirements, which can impose significant additional cost.
On the other hand, the OCC also has stated that it acknowledges that the agency “may need to account for differences in business models and the applicability of certain laws” to fintech companies and stated that it will be “taking into account any relevant differences between a full-service bank and special purpose bank.” What this means in terms of how the OCC will regulate fintech companies is not yet clear. However, we will be continuing to follow the OCC’s application of these principles, which could have a significant effect on the fintech industry.
