August 14 — In response to the recent OCC announcement that it will begin accepting applications for special purpose national bank charters “from nondespository financial technology (fintech) companies engaged in the business of banking,” Minneapolis-based Wolters Kluwer has published The U.S. Treasury Fintech Report and the OCC Fintech Announcement: What They Mean for Banks and Fintechs. The whitepaper is intended as a summary highlighting key elements of both the OCC’s and Treasury’s announcements on innovation and advancing the use of financial technologies in the U.S. banking industry.
Report author Stevie Conlon, vice president, tax and regulatory counsel at Wolters Kluwer, view the twin announcements as important developments for banks, credit unions and fintechs, with broader implications for regulators and consumers. She believes the policy shift could reduce state regulatory burdens for those fintechs that obtain such a charter.
Conlon explains that the OCC makes it clear that obtaining such charters will come at a price — ongoing compliance with a host of applicable federal and state banking laws and safety and soundness requirements, as well as supervisory oversight. Consequently, fintechs needs to carefully consider whether a special purpose national bank charter is right for them, given the costs, expectations and ongoing responsibilities. Her paper notes that for banks, the announcement raises the immediate concern of increased competition relating to certain core banking functions.
The 223-page U.S. Treasury report, is fundamentally a set of over 80 fintech-related recommendations for federal and state regulators and legislators to consider and includes the OCC’s decision to grant special purpose national bank charters to fintechs. Conlon notes that it is not clear when various steps — other than the bank charters to fintechs provision — will actually be taken, or the extent to which the final details will differ from the reported recommendations. Banks and fintechs, Conlon writes, will need to continue to comply with existing laws and regulations until actual changes are adopted and implemented.
State banking regulators had previously challenged the appropriateness of national bank charters for fintechs, and new warnings have been made since the July 31 announcements. State regulators, community bankers and others raise important concerns that should and will undoubtedly we considered.
The paper, which is available in its entirety here, concludes by noting that the announcements acknowledge that “innovation is relentless, and the needs and desires of consumers change. Banks, regulators and others need to adapt.”