Banking Law News

Fintech Charter Seekers Shouldn’t Fret About Fed Access: Otting

Jan. 16, 2019, 6:20 PM

Fintech firms considering a federal banking charter shouldn’t worry about gaining access to the Federal Reserve system, Comptroller of the Currency Joseph Otting said Jan. 16.

Otting sees federally-chartered fintech firms as having some form of access to the Fed’s payments system or its discount borrowing rates—even though the central bank has never directly addressed the issue.

“I don’t view that as an impediment,” Otting said during a Jan. 16 roundtable with reporters at the Office of the Comptroller of the Currency’s Washington headquarters.

A handful of fintech companies are finalizing their applications for the OCC’s special purpose national bank charter. A fintech charter would allow non-bank fintechs to make loans and handle transactions, but not take deposits.

Some fintech firms, such as international money transfer company TransferWise, have voiced concern about access to the Fed system, since current rules requires members to accept deposits.

“That there hasn’t been much, if any, public dialogue between the OCC and the Federal Reserve on charter holders eligibility to have access is a surprise given the industry’s comments to each on the matter,” Andrew Boyajian, TrasnferWise’s Head of Banking for North America, told Bloomberg Law Jan. 16 by email.

The Fed has repeatedly declined to comment on whether it would allow fintechs as new entrants to its system.

Indirect Access?

Otting said Fed access hasn’t come up in the “hundreds of meetings” he’s had with fintech firms about the new charter.

Otting pointed to the model of community banks working with correspondent banks in the Fed system as a resolution to the issue. Many fintech companies are already in similar partnerships with correspondent banks to support their payments or lending operations, he said.

Bank partnerships entail fees and other costs that fintech firms might avoid by pursuing the OCC’s special charter as an alternative.

“Direct access to the payment systems is a benefit for the financial system as well as for consumers,” Boyajian said. “Eliminating a dependency on banks as an access point lowers systematic risk, in the case of bank failure or de-risking. And, in turn, it lowers the cost of financial services offered by fintechs.

The OCC expects to issue its first fintech charter in the first quarter of 2019, even though the agency faces a legal challenge from New York’s Department of Financial Services and other state regulators who say the OCC is preempting their authority over fintech firms. Otting said the OCC is working to resolve the court case as soon as possible.

“2019 will be a pretty interesting time to watch fintechs,” Otting said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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