Member Article

After two years of review, the Office of the Comptroller of the Currency (OCC) recently announced that it will begin accepting applications for special purpose national bank charters from financial technology (fintech) companies.

The OCC’s announcement came hours after the Treasury Department endorsed the approach.

The announcement specifically states that the OCC intends to consider charter applications submitted by non-depository fintech companies (which, as a result, would exempt such companies from the need to obtain FDIC insurance). Fintech companies would have to be involved in the “business of banking,” including “any of the three core banking functions of receiving deposits, paying checks or lending money.”

It is likely that publicly traded marketplace lending companies like LendingClub Corp. (NYSE:LC) and On Deck Capital Inc. (NYSE:ONDK) will be interested in submitting an application to the OCC in hopes of being regulated by a single national regulator, rather than the current patchwork of state regulators such companies must navigate.

Furthermore, the policy statement and Comptroller's Licensing Manual Supplement issued in conjunction with the OCC’s announcement emphasized the following:

• Every application will be evaluated on its unique facts and circumstances.
• Fintech companies that apply and qualify for, and receive, special purpose national bank charters will be supervised like similarly situated national banks, to include capital, liquidity, and financial inclusion commitments as appropriate. Fintech companies will be expected to submit an acceptable contingency plan to address any significant financial stress that could threaten the viability of the bank. The plan would outline strategies for restoring the bank’s financial strength and options for selling, merging, or liquidating the bank in the event the recovery strategies are not effective.
• The expectations for promoting financial inclusion will depend on the company’s business model and the types of planned products, services, and activities.
• New fintech companies that become special purpose national banks will be subject to heightened supervision initially, similar to other de novo banks.
• The OCC has the authority, expertise, processes, procedures, and resources necessary to supervise fintech companies that become national banks and to unwind a fintech company that becomes a national bank in the event that it fails.

Fintech companies interested in pursuing a national bank charter will have many decisions to make prior to applying to the OCC, including whether such an application might affect pre-existing joint venture agreements with traditional banks, and whether to incur the costs of compliance with OCC supervision.

While it presents an opportunity, the move also presents interesting challenges to fintech companies interested in obtaining a national bank charter. Such a move would mean several new requirements for fintech companies, including:

• Maintaining a business plan documenting activities like financial inclusion;
• Implementing a corporate governance structure that reflects the expertise, financial acumen and risk management necessary to operate a national bank;
• Managing bank compliance risks (e.g., consumer protection, Know Your Customer and Anti-Money Laundering controls) effectively.

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