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Regulator Will Start Issuing Bank Charters for Fintech Firms

DOW JONES & COMPANY, INC. 10:35 AM ET 12/2/2016


WASHINGTON—A top banking regulator said it would for the first time allow financial-technology firms to apply for federal charters, a move that will give the rapidly growing industry a new opportunity to expand while increasing government oversight of the sector.

"It will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed," Thomas Curry, the head of the Office of the Comptroller of the Currency, said in remarks prepared for delivery Friday morning at Georgetown University Law Center.

In a document released along with his speech, the OCC said it soon would allow so-called fintech firms—which offer loans through online platforms and payment systems through smartphone apps and websites—to become "special purpose national banks," a move the tech industry has long lobbied to achieve.

The change would make it easier for them to do business by giving them a chance to operate nationally on their own with one license, rather than seeking permits state by state, or without partnering with a traditional brick-and-mortar bank. Many firms say the current process is cumbersome and costly, making it difficult to expand as a startup with limited resources.

Even before the OCC announcement, some fintech firms had sought a national license. One such firm, Boston digital- payments pioneer Circle Internet Financial Ltd., said such a move would reduce the cost and complexity of doing business.

The new proposed charter is open to public comment through Jan. 15 and is expected to generate significant reaction, following monthslong deliberations inside the OCC about whether to become first U.S. federal regulator to allow nonbank fintech firms to become banks.

The OCC decision comes as American regulators have struggled to strike the right balance between encouraging innovation in finance while extending traditional protections to new financial products. Both consumer groups and banks have raised concerns about the rise of the fintech industry, with older financial institutions calling for a "level playing field" of similar oversight among firms offering similar services. Some fintech firms have complained that other countries, notably the U.K., have done more to update their financial-regulatory systems to allow for financial experimentation.

In a sign U.S. officials are ramping up their attention to the issue, Federal Reserve governor Lael Brainard, in a separate speech Friday, laid out the principles the central bank is using as it contemplates how to modify regulations to respond to the fintech boom.

"It is important that regulators and supervisors not impose undue burdens on financial innovations that would provide broad social benefits responsibly," she said at a Fed conference on financial innovation. Still, she said, federal regulators have concerns about the development of the fintech sector, particularly with regard to data-collection practices. She said some data-collection practices by fintech firms could put consumer protection at risk.

In his speech, Mr. Curry said the OCC would issue the charters because "first and foremost, we believe doing so is in the public interest." He added that "fintech companies hold great potential to expand financial inclusion, empower consumers, and help families and businesses take more control of their financial matters. We recognize that our decision will affect the federal banking system for many years to come, and I believe that effect will be a positive one."

Gabriel T. Rubin will contribute to this article.

Write to Rachel Witkowski at [e-mail]


(END) Dow Jones Newswires
12-02-161035ET
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