Regulator will start issuing bank charters for fintech firms


“It will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed,” Thomas Curry, the head of the Office of the Comptroller of the Currency, said in remarks prepared for delivery Friday morning at Georgetown University Law Center.

In a document released along with his speech, the OCC said it soon would allow so-called fintech firms – which offer loans through online platforms and payment systems through smartphone apps and websites – to become “special purpose national banks,” a move the tech industry has long lobbied to achieve.

The change would make it easier for them to do business by giving them a chance to operate nationally on their own with one license, rather than seeking permits state by state, or without partnering with a traditional brick-and-mortar bank. Many firms say the current process is cumbersome and costly, making it difficult to expand as a startup with limited resources.

Even before the OCC announcement, some fintech firms had sought a national license. One firm, Boston digital-payments pioneer Circle Internet Financial, said such a move would reduce the cost and complexity of doing business.

The new proposed charter is open to public comment through January 15 and is expected to generate significant reaction, following months-long deliberations inside the OCC about whether to become the first US federal regulator to allow nonbank fintech firms to become banks.

The OCC decision comes as American regulators have struggled to strike the right balance between encouraging innovation in finance while extending traditional protections to new financial products. Both consumer groups and banks have raised concerns about the rise of the fintech industry, with older financial institutions calling for a “level playing field” of similar oversight among firms offering similar services. Some fintech firms have complained that other countries, notably the UK, have done more to update their financial-regulatory systems to allow for financial experimentation.

In a sign US officials are ramping up their attention to the issue, Federal Reserve Governor Lael Brainard, in a separate speech Friday, laid out the principles the central bank is using as it contemplates how to modify regulations to respond to the fintech boom.

“It is important that regulators and supervisors not impose undue burdens on financial innovations that would provide broad social benefits responsibly,” she said at a Fed conference on financial innovation. Still, she said, federal regulators have concerns about the development of the fintech sector, particularly with regard to data-collection practices. She said some data-collection practices by fintech firms could put consumer protection at risk.

In his speech, Curry said the OCC would issue the charters because “first and foremost, we believe doing so is in the public interest.” He added that “fintech companies hold great potential to expand financial inclusion, empower consumers, and help families and businesses take more control of their financial matters. We recognise that our decision will affect the federal banking system for many years to come, and I believe that effect will be a positive one.”

The fintech industry has grown rapidly in recent years to more than 4,000 firms between the U.S. and UK alone, Curry said. Investment in the sector has grown from $ 1.8 billion to $ 24 billion worldwide in the past five years, he added.

While touting the possible consumer benefits, regulators also have expressed concerns that these firms were outside their supervisory system. That, they say, makes it hard to enforce consumer protection laws, or monitor the safety and soundness of the financial system.

However, the OCC also said it won’t require fintech firms to get a federal charter. Instead, they can have the option of seeking a federal charter or continue with state licensing, known as a dual banking system. Regulators years ago offered a similar licensing process to help the spread of credit-card companies.

“Preventing this class of companies from having that same option hurts the nation’s dual banking system and could make the federal banking system less capable of adapting to the evolving business and customer needs of tomorrow,” Curry said.

It is unclear how many fintech firms will actually take up this new charter. Many have grown quickly in the current system, without a bank charter. And a new charter, even if not a full-fledged bank charter, would likely entail new costs as well as new opportunities.

The notion of a special-purpose charter has also drawn concerns from some consumer groups who want to ensure all of the banking and fair-lending laws apply to fintech firms and banks that fear they would lose business to fintech if they had to compete within the same banking system.

Curry said the policy they are developing for the special charter will ensure the same banking laws apply based on the business the fintech firm provides.

“The OCC has the unique ability to impose requirements in some or all of these areas through the chartering process to require companies seeking national charters to support financial inclusion in meaningful ways, as appropriate for the business model and activity of a particular company,” he said.

Curry also said he disagreed in the notion that banks would be at a competitive disadvantage if fintech firms could become banks.

“The reality today is that the 4,000 fintech companies out there are already competing with national and state banks, without regard to any of the national bank responsibilities and under a patchwork of supervision,” he said. Granting a charter “levels the playing field because statutes that by their terms apply to national banks would apply to all special purpose national banks, even uninsured ones.”

Fintech firms that can apply for an OCC charter must offer at least one of three financial services: make loans, pay checks or receive deposits. The OCC is currently developing guidelines for a fintech bank charter that will be based on the comments received from the proposed paper.

Write to Rachel Witkowski at

Gabriel T. Rubin contributed to this article, which was published by The Wall Street Journal

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