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OCC Charter: A Solution to a Non-Existent Problem

By Drew J. Breakspear, Commissioner, Florida Office of Financial Regulation 

Originally published in American Banker, January 24, 2017  

The Office of the Comptroller of the Currency’s decision to offer special-purpose national charters to fintech companies is misguided and troubling on many levels. By choosing winners and losers in the financial marketplace, this one-size-fits-all approach to fintech chartering could ultimately prove detrimental to the growth of fintech businesses and those who benefit from innovation. 

The OCC’s framework would apply a uniform system of overseeing and chartering companies regardless of where they operate, but the federal agency’s approach will not be the best fit for every state. Local and state regulators are most familiar with their respective financial services landscape, and a policy that works for one state may not work best for another. 

The Florida Office of Financial Regulation has staff across the state who work tirelessly to ensure that we meet the needs of those we regulate and consumers. In Florida, our licensees and state-chartered institutions value their direct access to local regulators who know and can be responsive to the state’s markets and economic trends. 

But that understanding of community needs is lost when regulatory authority is channeled through a single federal regulator located far from the delivery of services. 

Yet an even greater concern is that the OCC’s special-purpose fintech charter will create an unfair marketplace. The federal criteria for obtaining a charter will favor large fintech firms over small businesses, which are the engines of employment growth and the development of new products and ideas. 

For example, the OCC plan would require charter holders to pay what are essentially insurance premiums to fund the federal agency’s ability to resolve a failed firm. But these premiums could be high, restricting the growth of small startups that tailor their business model to the community’s needs. If the OCC charter provides regulatory advantages, then it will only be the firms that can absorb such costs that will benefit. It may help large players, but would be stifling to small businesses.

Startups, such as Facebook, are often launched in college dorms. Would they get off the ground today if they had to compete with larger, federally licensed firms with such an advantage? 

Meanwhile, the OCC does not have the authority to offer these special purpose charters in the first place. The National Bank Act does not expressly give the OCC power to issue charters to non-depository institutions. To date, there has never been a charter of this kind in the national banking system. 

With state regulators already licensing fintech firms and ably overseeing them, the OCC has offered a solution to a problem that does not exist. 

Florida’s financial services industry has experienced exponential growth under a practical state regulatory system. One size does not fit all. Fintech regulation is best left to the states. 

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