The Federal Reserve a Potential Roadblock to Fintech Charter

Recent reports indicate that the Federal Reserve (Fed) may not be in line with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) when it comes to granting financial technology (fintech) firms national charters.

The bank-like special-purpose charter would allow fintech firms to reduce regulatory costs and expand their products and regions served. Currently, fintech firms operate under state rules, which means the variety of patchwork regulations can create burdensome regulatory costs and limitations.

The Fed has yet to state whether they would offer fintech firms with national charters access to their electronic payment systems. It has been reported that Fed officials are concerned that fintech firms lack the consumer protections and risk management controls that banks have in place.

Head of the OCC, Joseph Otting, has argued that these reports are false and that no fintech firm has voiced concern that the Fed would prevent them from accessing the payments system. Even if the Fed did prevent fintech firms, Otting added that these firms would have other ways of processing payments.

“I don’t view that as an impediment because most of these entities that today would apply to be a bank, many of them are operating today as a state-chartered or state-licensed lender and virtually all of them have a correspondent banking relationship with a large bank that gives them the ability to process checks and send wires,” Otting said. “I can tell you of the hundreds of meetings I’ve had with fintechs, not one has brought that issue up as an impediment.”

While downplaying concerns, Otting did mention that formal clarity is needed from the Fed on whether charter holders will be able to offer direct payment services.