State regulators have reached an agreement on multistate licensing and supervision standards for the financial technology industry, drawing from recommendations made by a group of several dozen fintech companies.

The Conference of State Bank Supervisors (CSBS) announced the adoption of 14 recommendations suggested by the group, including development of a 50-state model law.

What happened

Seeking to modernize state regulation of nonbanks—and perhaps motivated by the Office of the Comptroller of the Currency’s (OCC) recent decision to grant special purpose “fintech” charters—the CSBS launched Vision 2020, a series of initiatives to standardize and streamline state regulation of nondepository financial service institutions, including fintech firms.

As part of the effort, 33 companies joined the CSBS Fintech Industry Advisory Panel, formed in 2017 to identify and remove “unnecessary pain points” in the multistate experience of fintech companies and other nonbanks operating on a regional or nationwide basis.

Recently, CSBS agreed to implement 14 recommendations from the panel, primarily aimed at creating uniform definitions and practices, increasing transparency, and expanding common technology among state regulators.

The recommendations include actions such as developing a 50-state model law to license money services businesses (MSBs) (with standardized definitions, interpretations of the activities that require MSB licensure and exemptions from licensure), creation of a standardized call report for consumer finance businesses, and development of an electronic database of state licensing and fintech guidance.

CSBS also agreed to expand the use of the Nationwide Multistate Licensing System (NMLS) among all state regulators and to all nonbank industries supervised at the state level.

Another recommendation addressed the possibility of creating a more consistent examination cycle across state borders. In January, CSBS initiated a pilot program where one money transmitter firm will have a single exam used across all the states where it is regulated.

“The pilot is really meant to identify what kind of information we could ask the company ahead of time and do a much better job of sharing that information and communicating with each other so that we don’t duplicate efforts,” Kevin Hagler, commissioner of the Georgia Department of Banking and Finance, one of the regulators involved in the pilot program, explained to American Banker.

CSBS said it plans to reach out to stakeholders for feedback and suggestions with regard to the recommendations.

“The output is bold, ambitious and I think it really is a turning point for the state system,” CSBS President and CEO John Ryan said at a press conference.

To read the full list of recommendations adopted by the CSBS, click here.

Why it matters

If CSBS’s efforts are successful, fintech and other nonbank financial service companies could see their compliance burden substantially reduced. Instead of parsing 50 different licensing and regulatory regimes, these businesses potentially could access multiple states’ markets by following a single, uniform law.

CSBS’s efforts to advance a more uniform approach to state regulation of fintech and nonbanks is consistent with the organization’s opposition to the OCC’s plan to grant fintech charters. Fintech charters are viewed by some state regulators as encroaching on their oversight prerogative. Streamlining the state regulatory landscape could weaken interest in obtaining national fintech charters, thereby leaving most oversight in state hands. Whether states will adopt uniform legislation remains to be seen. But even if only some of the states choose to do so, fintech companies stand to benefit.