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The Office of the Comptroller of the Currency (OCC) recently announced its continued support for providing financial technology firms national banking licenses. On July 19th, Keith Noreika, acting Comptroller of the Currency, said, “We all need the federal banking system to be more inclusive, to accommodate new banks, and to adapt to the changing needs of the marketplace, customers and communities,” citing “responsible innovation” as the driving force for such measures.

Appointed to his position in May of 2017, Noreika had not previously addressed the concept of National Charters for FinTech firms. This idea, put forth by his predecessor Thomas Curry in March of this year, is dependent on the OCC’s support.

Not everyone agrees that the OCC should create a National Charter. Lawsuits have emerged from State banking regulators and consumer groups, claiming that issuing a special-purpose national charter to FinTech companies could be detrimental to consumers’ interests, as chartered FinTechs would then be able to bypass the stronger consumer protection laws that are state-specific (such as New York’s anti-usury laws and interest rate caps). This is one of the arguments for the Conference of State Bank Supervisors’ (CSBS) suit, emphasizing that “state lawmakers and regulators are closest to the action and are best positioned to monitor non-depository financial firms and protect consumers from potential abuse”.

A recent Bloomberg article clearly summarized the issue: “Right now, a major battle is under way between state and federal regulators who are competing to draft and enforce the rules that will guide the future development of the FinTech industry. This battle recently has spilled out from behind the closed doors of bureaucratic negotiation into open public attacks and lawsuits, creating even greater uncertainty amongst FinTech companies about their future regulatory obligations.”

The potential of a National Charter is a windfall for FinTechs. The Chamber of Digital Commerce estimated FinTech firms might be spending $2 to $5 million per year on state-level regulatory and compliance requirements, taxing regimes, and licensing, as cited by Forbes:

“The key benefits of a Special Purpose National Bank Charter are uniform regulations, standards, supervision and authority for emerging financial technology companies to operate nationwide. A Special Purpose National Bank Charter also offers qualifying businesses a clearer path to market entry, along with a quicker path to profitability and hopefully success.

This dynamic will also help the industry accommodate our ever-expanding and changing behaviors in managing and maintaining financial activity, especially among young U.S. consumers who do not use traditional financial services in the same way as their parents.”

While the boon for the FinTech industry is clear, what remains unclear is how to predict future regulatory costs. The OCC has released some guidelines for applicant evaluation:

  • Whether the entity has management with appropriate skills and experience.
  • If the company has adequate capital to support the projected volume and type of business and proposed risk profile.
  • Whether the entity has a business plan that articulates a clear path and a timeline to profitability.
  • If the entity includes in its business plan, if applicable, a Financial Inclusion Plan (FIP) that has an appropriate description of proposed goals, approach, activities, and milestones for serving the relevant market and community.

Regardless of the regulatory battle for jurisdiction over FinTech firms, an important aspect to note is the increasing pressure over the regulatory and compliance requirements to come for FinTechs. Preparedness is the right strategy amidst uncertainty. Having regulatory compliance processes and procedures up to date will make adjusting them that much easier in case new requirements are enacted or a new regulator is given jurisdiction over your activities.

At IdentityMind Global we’ve helped small FinTech firms get their compliance function up to speed and larger FinTech firms operate more efficiently. We work with 30+ MSB’s that are either based in the US or have customer in the US, and these firms use IdentityMind’s platform to comply with Anti-Money Laundering regulations including:

  • Know Your Customer (KYC)
    • Politically Exposed Person (PEP)
    • Sanctions Screening
  • Enhanced Due-Diligence
    • Phone Validation
    • Name/Address Validation
    • Document Validation
  • Transaction monitoring
    • Prepopulated Suspicious Activity Report (SAR) creation
    • Discrete and batch filing