OCC to create a Fintech entity
The U.S. financial services regulatory system is the most extensive—and complicated—in the world, with multiple executive branch federal agencies, state-sponsored enterprises, the Federal Reserve, and state regulators across the spectrum. We have discussed this for a long time in member investigations this year. These regulators have specific and often overlapping responsibilities for governing the industry in general, and specifically for the various forms of banking and capital markets. At the time, a review of regulator websites and published materials indicated that US regulatory scrutiny remained mostly focused on the chartered institutions, but we speculated that some changes would occur over the next few years as the role of fintechs (and big tech) becomes clearer to the overlords.
Around 2016 and 2017, the Office of the Comptroller of the Currency (OCC) proposed Special Purpose National Bank Charters for Fintech Companies, which would have created a path to neo-bank charters. We believed it was a sensible direction, and the OCC recognized the impact technology was having on the delivery of financial services. Regulators are supposed to be concerned about risks and trends that could be destabilizing. Since fintechs had been seeking new and better ways to deliver services, whether with bank collaboration and partnership or without, it seemed reasonable that the OCC would want to have more insight and control over how that can be done. Ultimately, the Conference of State Bank Supervisors (CSBS), a nationwide organization composed of state bank regulators in the United States, brought a lawsuit challenging the OCC’s fintech bank charter initiative, and the proposal was subsequently dropped.
This referenced Finextra article provides insight into how this will begin to unfold as the OCC, the primary regulator of nationally chartered commercial banks, will set up a financial technology unit starting in 2023. The intent is to help the regulator keep up with rapid technology change. Since the stated purpose of financial regulation is to ensure the safety and soundness of the financial system, as well as promote healthy competition, this may seem a bit late, but certainly expected.
Generally speaking, the US has been relatively conservative in financial regulation since the Dodd Frank days (2010+), certainly compared to European counterparts in the UK and EU, so we’ll see where this goes.
Overview after Steve Murphydirector, commercial and corporate payment advisory service at Mercator Advisory Group.
