WASHINGTON — The Office of the Comptroller of the Currency has yet to formally unveil an optional charter for fintech firms, but players in the market are already worrying that if and when it does, other agencies may hamper the new charter's development.
Such a charter comes with a bevy of legal and policy questions to resolve, including whether parent companies of firms that obtain a fintech charter would have to subject themselves to oversight by the Federal Reserve Board. State regulators, meanwhile, fear a new charter could erode their ability to regulate firms within their jurisdictions.
Overall, it remains unclear how the OCC's final product, which is expected to be unveiled later this fall, will be viewed by its fellow supervisors, both at the state and federal level.
"The agencies all are concerned about their own turf," said John Beaty, a partner at Venable. "There's an inherent competition among" them.
To date, the OCC has taken the lead in addressing fintech issues, starting with the publication in March of a white paper on "responsible innovation" and openly contemplating the creation of a national charter for such firms.
The other federal regulators — the Fed and Federal Deposit Insurance Corp. — have stayed noticeably silent on the OCC's efforts, leading some to wonder whether the agencies are all on the same page.
"Everybody wants to be at the table, for sure," said Jo Ann Barefoot, a consultant specialized on fintech regulatory matters. But "they each have their own style, and their own mandate, and so they go about it differently."
One key question is whether the Fed must eventually get involved. The central bank has not publicly commented on the OCC's fintech efforts, and declined to comment on this story.
Yet there are questions about whether or not a firm that receives an OCC charter must register its parent company as a bank holding company, which would make it fall under central bank supervision.
But since fintech companies are not typically structured like banks, that could create a number of complex legal questions that the agencies must resolve. Moreover, fintech firms might eschew a new charter if it came with two federal regulators attached to it.
"Is the Fed going to be comfortable not having holding company regulatory authority over the parent company of a fintechbank?" said Julie Williams, a managing director at Promontory and former top OCC official.
Williams also pointed to an obscure provision in the Federal Reserve Act that requires all national banks to be members of the Fed, another measure that could create headaches for the OCC.
"The question here is would the Fed assert that a fintech national bank must be a Federal Reserve member bank?" said Williams.
The FDIC's role, if any, is also unclear. The FDIC is typically involved in the creation of any new bank since firms must apply for deposit insurance as well as a federal charter.
But the OCC is specifically contemplating a charter without deposit insurance, which obviates the need for a FDIC role.
The OCC's first concrete step towards establishing a potential fintech charter was the issuance of a proposal that would create a receivership process for national banks that do not take deposits.
The plan today would affect only a few dozen trust banks, the last failure of which was in the 1930s, but the proposal could later expand to include payments processors and even online lenders.
The move was decoded by some as a sign the agency wanted to distance itself from the FDIC, which critics see as unwilling to approve new charters (a charge the agency denies).
Because nondepository institutions do not have to apply to the FDIC for insurance, they could get chartered with only the OCC's approval.
"The OCC's acknowledging that there are businesses that — even though they would like to get deposit insurance — don't want to go through that process," said Pratin Vallabhaneni, an associate at Arnold & Porter who advises fintech companies on regulatory matters. "They're validating the existence of banks without FDIC deposit insurance."
Some observers speculate there may be another reason why the FDIC is not as vocal as the OCC on fintech matters is because it is already on the front lines as the primary supervisor of a growing number of small and medium-sized banks that have established partnerships with fintech companies.
"Because it has most of the institutions under its supervision that are players in the marketplace lending space, anyways, I think they are taking a practical approach to the here and now," said Marc Franson, a partner at Chapman and Cutler.
For the OCC's part, Chief Counsel Amy Friend denied that the receivership proposal was an attempt for the agency to keep the FDIC at bay on the fintech charter, assuming it decides to issue one.
"The receivership proposal had been in the works for some time and was not driven by our exploration of fintech and special purpose charters, although we recognized its applicability to special purpose charters," said Friend in an interview with American Banker. "Fintech was not what prompted the proposal."
Barbara Hagenbaugh, a FDIC spokeswoman, said the agency would not have a role in the OCC's charter if the entities involved were not accepting deposits.
Even if the Fed and FDIC give the OCC their blessing, many state regulators are also concerned that a fintech charter could hamper their power to regulate the fintech industry within their borders.
"A federal charter is likely to preempt state laws on interest rates, impairing states' ability to tailor their laws to their consumers," said Ray Grace, the North Carolina banking commissioner, in a recent interview.
State regulators also believe that they are better positioned to assess these businesses' risks to local consumers.
"While the federal government is talking about what to do about fintech, the states are already acting in this space," said Massachusetts Commissioner of Banks David Cotney. "We see things early, and our legislatures and state regulators have the flexibility to act quickly."
Beyond the questions of law and policy, regulators have been criticized for not appearing to present a united front on fintech, making the regulatory landscape even harder to navigate for newcomers.
"There's so little clarity on which regulator to go to, much less discussion between regulators about new technologies," said Rep. Patrick McHenry, R-N.C.in a speech last month announcing the introduction of a new bill that would force federal regulators to establish offices dedicated to fintech and share data with each other on the evolving industry.
For their part, regulators claim they do communicate. There are a number of working groups dedicated to tackling specific fintech issues at both the national and federal level — within the Federal Financial Institutions Examination Council, the Basel Committee and the Treasury Department, for instance.
"We recognize that regulation is as interconnected as the financial industry itself," Comptroller of the Currency Thomas Curry said last month in a speech about the agency's upcoming decision on the fintech charter. "In applying the framework, we will collaborate with other regulators."
Still, it remains to be seen whether they will be able to overcome some of the legal obstacles that lie in the path of a fintech charter without engaging with each other more publicly.
For example, both the OCC and FDIC have recently renewed their risk management guidance on third-party partnerships — which include online lenders, payments processors and other fintech players. But they did so separately.
Hagenbaugh, the FDIC spokeswoman, said the agency's guidance — released in August — was not targeting fintech companies. It was mainly a response to an Inspector General report that accused the agency of forcing banks to shut down their tax refund anticipation loan businesses, she said.
But critics note that these sets of best practices do not appear to differ meaningfully from each other, and yet they were addressed individually.
"They look a little bit different, but the principles that are contained in the third-party risk management guidance documents are very similar," said Williams.
To some, this is a prime example of the agencies' lack of resolve to create a more coherent framework for these companies.
"There's no significant reason" for issuing separate documents, said Vallabhaneni. "There's a mechanism in place to achieve that consistency, which is the FFIEC."
Issuing a common FFIEC letter would also have the benefit of including the Consumer Finance Protection Bureau, added Vallabhaneni.
And these separate documents have already made it more complicated for third-party fintech companies to evaluate their partnerships with banks.
"Now they have to think about which bank should they partner with depending on who the bank's primary regulator is," said Vallabhaneni.