The Office of the Comptroller of the Currency (OCC) announced July 31, 2018, that it will begin accepting national bank charter applications from financial technology companies. In December 2016, the OCC initiated a public comment process concerning fintech charters that culminated with the July 31, 2018, issuance of a Policy Statement on Financial Technology Companies' Eligibility to Apply for National Bank Charters (Policy Statement) and a related supplement to the Comptroller's Licensing Manual (Supplement).
In the Policy Statement, the OCC explains that it is the policy of the OCC to consider applications for national bank charters from companies conducting the business of banking, provided they meet the requirements and standards for obtaining a charter. This policy now includes considering applications for special purpose national bank (SPNB) charters from financial technology companies that are engaged in the business of banking but do not take deposits.
Reflecting opposition expressed by state regulators and their trade associations during the public comment period, in the Policy Statement the OCC went out of its way to underscore its authority to charter SPNBs. It notes that the National Banking Act gives the OCC broad authority to grant charters for national banks to carry on the "business of banking," which includes receiving deposits, paying checks or lending money. In addition, the OCC regulations provide that a SPNB must conduct at least one of these three core banking functions. Thus, the OCC has the authority to grant a national bank charter to a fintech company that engages in one or more of those core banking activities. Litigation brought by the New York State Department of Financial Services (NYDFS) to block the OCC's ability to issue SPNB charters to fintech companies was dismissed in December 2017 on the basis that the NYDFS claims were not ripe as the OCC had not yet decided whether to accept applications or issue any charters. Now that the OCC has indicated that it will accept SPNB charter applications, it is likely that the NYDFS, possibly joined by other state regulators, will reinstate its litigation.
In clarifying its intention to exercise SPNB chartering authority, the OCC recognizes the importance of supporting responsible innovation in the federal banking system to better enable the system to:
- evolve to meet the needs of the consumers, businesses and communities it serves;
- operate in a safe and sound manner;
- provide fair access to financial services;
- treat customers fairly; and
- promote economic opportunity and job creation.
In the Supplement, the OCC states that SPNBs will be supervised by the OCC under a scheduled supervisory cycle, including on-site examination and periodic off-site monitoring. The OCC notes that it sets high expectations for the entities that it supervises. Like all de novo institutions, newly chartered SPNBs will be subject to rigorous ongoing OCC oversight to ensure that the bank's management and the board of directors are properly executing their business strategy and the bank is meeting its performance goals.
Key supervisory considerations for SPNBs are set forth in Appendix A to the Supplement and include:
- a supervisory framework that incorporate core elements in place for other national banks and a supervisory strategy that is tailored to the SPNB's business model;
- a rating framework that is the same as for other national banks with composite ratings based on an evaluation of an institution's managerial, operational, financial, risk management and compliance performance;
- corporate governance structure commensurate with the risk and complexity of the related SPNB and its proposed products and have expertise, financial acumen and a risk management framework that includes governance and well-defined roles among the bank's business units, support functions and the internal audit function with a prominent role of the bank's board of directors in the overall governance structure by participating on key committees and guiding the bank's overall strategy and risk management framework. Board members also must actively oversee management, provide credible challenge and exercise independent judgment; and
- ongoing communication between the OCC and the SPNB, including formal and informal conversations, meetings, examination reports and other written communications. At a minimum, the OCC must provide a bank's board of directors a report of examination (ROE) at least once each supervisory cycle. The ROE conveys the bank's overall condition, ratings and risk assessment summary. It also summarizes examination activities and findings identified during the supervisory cycle.
Neither the Policy Statement nor the Supplement indicate whether the OCC will implement a different fee structure for SPNBs. Historically the disparity of costs associated with the OCC supervisory fee structure and the requirement that national banks become members of the Federal Reserve System have discouraged small state licensed community banks from obtaining national bank charters.