On July 31, 2018, the Office of the Comptroller of the Currency (OCC) announced that it will begin accepting applications for special purpose national bank charters from financial technology companies. This “fintech charter” is limited to institutions that do not accept deposits.
The fintech charter was initially unveiled on December 2, 2016, by prior Comptroller of the Currency Thomas Curry. The concept was that fintech firms not linked to national banks were forced to comply with a wide variety of state-level regulations, leading to complex compliance concerns. The fintech charter would apply at the national level and was a step toward creating uniform federal regulatory standards for fintech companies to operate nationally.
In April 2017, the Conference of State Bank Supervisors, made up of the various state banking regulators, filed a lawsuit seeking to block the special charter, arguing that the OCC does not have the authority to create a special purpose nonbank charter. But this lawsuit was dismissed on April 30, 2018, by a federal district court judge in the District of Columbia. A similar action brought by the New York Department of Financial Services was dismissed on December 12, 2017, by a New York federal judge.
In its July 31, 2018, public statement, the OCC concluded that it has the statutory authority to issue special purpose national bank charters, which includes issuing charters to companies that engage in one of the core banking functions (paying checks, lending money, or taking deposits) described at 12 C.F.R. 5.20(e)(1). The OCC’s authority is not limited to banks that take deposits. Therefore, these companies are not permitted to accept deposits and are not required to have insurance from the FDIC. Fintech-chartered companies will need to adhere to comparable compliance requirements for similarly situated national banks, such as capital, Bank Secrecy Act, anti-money laundering and federal consumer protection compliance.
The OCC’s decision to accept fintech charter applications was included in the OCC’s policy statement and the supplement to the OCC’s Comptroller’s Licensing Manual, both published July 31, 2018. The Licensing Manual Supplement provides companies with guidance on the prefiling communications, how to file and how the applications will be reviewed. The application review section sets out key considerations for the applications, including an applicant’s business model and proposed risk profile; whether there is a clear path and timeline to profitability, adequate capitalization and liquidity; and whether the applicant has organizers and management with appropriate skills and experience. If the application is successful, approval will be in two steps: preliminary conditional and final. The Licensing Manual Supplement explains that the OCC has high expectations for the companies that receive the charter, and like all newly chartered companies, the fintech charter recipients will be subject to rigorous ongoing oversight to ensure that the bank’s management and the board of directors are properly executing their business strategy and the institution is meeting its performance goals.
As part of the fintech charter announcement, current Comptroller of the Currency Joseph M. Otting stressed that the decision behind allowing applications is to “provide more choices to consumers and businesses, and create greater opportunity for companies that want to provide banking services in America. Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.” Several prominent blockchain companies and industry organizations previously provided comments on the proposed fintech charter, including Coinbase, Ripple, Circle Internet Financial, Coin Center and Chamber of Digital Commerce. These organizations praised the OCC charter as a “responsible innovation” and expressed interest in working with the OCC toward a shared goal of promoting beneficial, supervised innovation.