State oversight of payments giants ‘a vestige of history,' Brooks says
WASHINGTON — The acting head of the Office of the Comptroller of Currency suggested that states should defer to the authority of the federal regulator in supervising large global payments companies.
The remarks by acting Comptroller Brian Brooks appeared to be a sharp escalation in the ongoing battle between the OCC and state regulators over who supervises tech-focused firms that want access to the banking system.
“It's important we have a dual banking system. But there are also gigantic global enterprises that are only regulated by the states as a vestige of history," Brooks said during a question-and-answer session hosted by American Banker. "There's no reason that they should be regulated by the states at all, and the law, we don't believe, requires that."
States and the OCC have long been at odds over federal preemption policies. The tensions have increased lately as state regulators have mounted a legal challenge to the OCC's special-purpose fintech charter, and more recently have spoken out against an OCC plan to tailor a charter specifically for payments companies.
Brooks sought to frame the OCC’s push for the fintech charter as something that should have bipartisan appeal. He noted that the OCC originally developed its plan for a fintech charter under former Comptroller of the Currency Thomas Curry, an Obama administration appointee.
“Somehow, in this current moment, everything in America seems to get politicized and seen in partisan terms, but I guess I would just remind people that the fintech charter has longstanding bipartisan support,” Brooks said.
Yet he vowed not to back down in the face of litigation brought by states against the fintech charter. A case in which a federal judge sided with the New York State Department of Financial Services in blocking the charter is currently pending in a federal appeals court.
“I don't think I can avoid the legal controversy; I think I have to win,” Brooks said.
“Previous comptrollers before me, both Democrat and Republican, have also had to win, but they have a long track record of doing so,” Brooks continued. “And I think we'll win on this as well. I think it's important to the economy that we do that.”
In a statement, John Ryan, president and CEO of the Conference of State Bank Supervisors, stressed the value of the dual banking system and states' track record as being "the laboratory of innovation for financial services."
"Changing the current system would unnecessarily distort a thriving market that has fostered a system of entrepreneurship, supported innovators, provided choice as well as protection for consumers and made our financial system the envy of the world," Ryan said. "The issues the acting comptroller raises are constitutional in nature and could significantly alter how our economy functions."
Earlier in the Q&A, Brooks signaled that the OCC would likely continue to issue interpretive letters on emerging issues in cryptocurrency and crypto assets — rather than make policies through rulemaking — in the short term.
“We do rulemakings when there's a significant policy change of some kind, so, you know, if we were to change a capital standard, or if we were to change a licensing standard or something like that,” Brooks said. “What we've done so far is, we've addressed the legal authority of banks to do certain things that are established law, and those traditionally have been done by chief counsel legal interpretive letters.”
“We don't need a new rulemaking to just give you that interpretation of our own regulation,” he said.
As for what the OCC would be issuing specifically, Brooks said that the public will soon see “some additional commentary on things like payment networks around blockchain, on things like stablecoins and the rules for reserve accounts of backing stablecoin projects, and other things.”
“We're working on a couple of additional crypto issues now beyond just the custody issue, because we see banks already participating in this,” he said.
“We haven't opined yet on what the rules ought to be about reserve requirements, collateral requirements, audit requirements for those things,” Brooks said. “These are things already occurring. We need to speak to those sooner rather than later.”