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 (SPNB) charters from nondepository fintech companies engaged in the business of banking. The OCC states that its decision to move forward “is consistent with bipartisan government efforts at federal and state levels to promote economic opportunity and support innovation that can improve financial services to consumers, businesses, and communities.” The decision was documented in a policy statement and supplement to the OCC’s Comptroller’s Licensing Manual. The application process and requirements appear largely similar to the guidelines and criteria the OCC previously released in December 2016 and March 2017.

In announcing the decision, the OCC’s policy statement and Comptroller’s Licensing Manual Supplement emphasize that:

  • Every application will be evaluated on its unique facts and circumstances. The OCC will use its existing chartering standards and procedures for processing applications from fintech companies as outlined in the Comptroller’s Licensing Manual. As with all national banks, the OCC will consider whether a proposed bank has a reasonable chance of success, will be operated in a safe and sound manner, will provide fair access to financial services, will treat customers fairly, and will comply with applicable laws and regulations. The OCC will also consider whether the proposed bank can reasonably be expected to achieve and maintain profitability and whether approving the charter will foster healthy competition.
  • Fintech companies that apply and qualify for, and receive, SPNB charters will be supervised like similarly situated national banks, to include capital, liquidity, and financial inclusion commitments as appropriate.
  • The OCC expects a fintech company that receives a SPNB charter to demonstrate a commitment to financial inclusion. The expectations for promoting financial inclusion will depend on the company’s business model and the types of planned products, services, and activities.
  • Fintech companies will be expected to submit an acceptable contingency plan to address significant financial stress that could threaten the viability of the bank. The plan would outline strategies for restoring the bank’s financial strength and options for selling, merging, or liquidating the bank in the event the recovery strategies are not effective.
  • New fintech companies that become SPNBs will be subject to heightened supervision initially, similar to other de novo banks.
  • The OCC states that it has the authority, expertise, processes, procedures, and resources necessary to supervise fintech companies that become national banks and to unwind a fintech company that becomes a national bank in the event that it fails.

Qualifying fintech companies also may apply for federal charters under the OCC’s authority to charter full-service national banks and other special purpose banks, such as trust banks, banker’s banks, and credit card banks. The OCC stresses that a national bank charter is only one of several available options for companies engaged in the business of banking. Other options include pursuing state banking charters, appropriate business licenses, and partnerships with other federal or state financial institutions. The option to apply for a national bank charter allows fintech companies to choose the best business model and regulatory structure for their business and strategic goals, which should help them meet the needs of their customers throughout the nation.

“The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy,” said Comptroller of the Currency Joseph M. Otting. “The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates 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.”

The announcement of the OCC’s decision to move forward was foreshadowed by the release earlier in the day of the Treasury Department fintech report, which recommended that the OCC move forward with the fintech charter process. This is encouraging news for the fintech industry, and we expect to see further regulatory accommodations made in the coming months. The timeline for the application and approval process remains unclear, as renewed litigation challenges from state regulators and others are likely now that the OCC has made a final determination that it will issue SPNB charters to fintech companies.

Stay tuned for further analysis and insights regarding the this key fintech development!