At the end of March, the OCC issued a whitepaper setting out the principles that it will use to guide the development of a framework to analyze innovations in the banking sector of financial technology, or “fintech” for short. The paper defined and encouraged “responsible innovation,” and discussed both benefits and risks arising from the types of innovations that are developing in that sector. For a more detailed discussion of the paper, see our GT Alert, “Fintech—Moving Toward a Regulatory Framework, The OCC Whitepaper on Responsible Innovation.”

The OCC’s paper, however, did not address a key question facing the industry—will small fintech startup companies be subject to the same regulations and same level of scrutiny that might affect fintech offered by banks? A recent New York Times article referred to the current regulatory environment, state, and federal rules, as a “bramble” that these fintech startups must face. Fintech startups must confront both the typical challenges of regulatory compliance, as well as questions of whether they are even required to comply.

Consider a scenario in which a startup and a bank release mobile applications with similar utility—the startup could benefit from significant competitive advantage if it were not obligated by the same compliance requirements. Consequently some traditional banks have urged that fintech should be subject to regulations equal to those applicable to banks because that will keep all competitive parties on equal footing.

To address these issues, regulatory bodies in the United States and around the world have begun to address the regulation of fintech. For example, the Consumer Financial Protection Bureau unveiled a policy to give startups some certainty about introducing their product, and the Treasury Department has sought information about marketplace lending. U.S. legislators have also signaled their intent to introduce legislation that would allow fintech to thrive across state lines, but passing such a law may prove to be a politically challenging task , in no small part because it would likely remove authority from state regulators.

For now, the decision is in the hands of the federal regulatory agencies such as the OCC. The applicability of existing regulations to fintech startups is unclear, and it remains to be seen how new regulations developed by the OCC and other will be applied to the burgeoning fintech sector.