Fintech firms get chance to grow up as US offers charters
Over the past decade, there’s been an explosion of Silicon Valley start-ups and technology companies that act like banks. Now, a key US regulator is inviting them to be regulated more like traditional lenders.
The Office of the Comptroller of the Currency said on Friday it plans to start accepting applications from fintech companies for a special charter that would formally subject them to federal banking rules. Companies that become chartered will get the benefits of being an established company in the eyes of the government. But they will also face anti-money laundering controls and consumer protections that apply to other lenders, the OCC said.
“Preferences and needs of consumers, communities, and business are changing,” Comptroller of the Currency Thomas Curry said in prepared remarks at Georgetown University Law Centre on Friday. “Providing a national charter to those responsible innovators who seek one and meet our high standards can help promote economic growth across the country and recognises that technology-based products and services are the future of banking and the economy.”
A special charter marks one of the most significant steps by US banking regulators to try to bring technology firms more under the government’s watch. With the development of systems such as blockchain, mobile payments systems and the new approaches to lending taken by companies including LendingClub and On Deck Capital – regulators have scrambled to keep pace. Many of the innovations have popped up without the government restrictions that established financial firms are subjected to. While the charter won’t be required for firms to keep lending, the government is trying to provide a framework that will entice companies to sign up.
A bank charter offers fintech firms a clear set of national standards, as opposed to a patchwork of local and state rules that many have complained are burdensome and confusing for small companies trying to grow. Just like the oversight that applies to traditional banks, the OCC’s special charter will exempt fintech firms from some state laws, like requiring a licence to engage in certain types of business.
Fintech firms would be subject to rules like those that try to prevent customers from laundering funds. Companies that accept federally insured deposits would also have to adhere to laws that seek to prevent racially discriminatory lending.
Being designated as a national bank could help extend fintech firms’ reach by making them established, giving confidence to potential customers and investors wary about new business models.
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