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New U.S. Regulator Races to Remake Banking in Fintech Image

June 16, 2020, 9:30 AM

Acting Comptroller of the Currency Brian Brooks wants to transform the future of banking and he may not have much time to do it.

The fact that Election Day is only five months away may explain why Brooks, who took office May 29, quickly announced plans for new types of charters for fintech and payment companies and new rules on bank-fintech relationships.

Brooks, like his predecessor, Joseph Otting, worked with Treasury Secretary Steven Mnuchin at OneWest Bank. The former Fannie Mae top lawyer and managing partner of O’Melveny & Myers LLP’s Washington office, also brings to the job considerably more experience in Washington, where he’s been known to give impromptu piano performances in the bar of the St. Regis Hotel.

That personal relationship with Mnuchin and Washington savvy should come in handy in a tenure that could prove brief if Democrats take the White House.

“Whether he’ll be able to get things all the way to the finish line is an interesting question but he’ll be able to change attitudes and approaches, for at least while he’s there, and he’ll be able to push the regulatory process as fast as it possibly could go,” said Todd Baker, a senior business, law and public policy fellow at Columbia University’s Richman Center who’s known Brooks since both were at law firms.

Brooks’ ambition to be the nation’s first “fintech comptroller” has its roots in his recent experience as general counsel at cryptocurrency exchange Coinbase, where he worked prior to joining the OCC in early 2020. Until recently, he also sat on the board of Avant, a prominent fintech lending firm.

“He’s seen how challenging it can be to bring innovation into the banking industry. He’s thought broadly about how to get new ideas, technology and business models into the mainstream banking industry,” said Konrad Alt, partner and cofounder of Klaros Group LLC, a consulting and advisory firm and former first deputy comptroller, the same role Brooks held before his elevation to the head of the OCC.

He also comes to the job “impatient with regulation and laws that are outdated,” said Steve Bunnell, an O’Melveny & Myers LLP partner who worked with Brooks and encouraged him to become general counsel at Coinbase.

Among his first acts as acting comptroller was the unveiling of an agenda to reexamine the inner workings of the banking system, including plans to offer new types of charters to incorporate fintech lenders and payments companies into the banking fold. Such a move could eventually allow his former employer, Coinbase, to become a bank under a new definition of banking activities. He’s since announced plans to craft rules on bank-fintech relationships, another move that would give the national bank regulator more power over fintech business models.

“We’re not trying to create some kind of a revolution where we’re going to give nonbanks so-called access to some preemptive power,” Brooks said June 11 during a webinar hosted by an online lenders group.

As the sole federal banking regulator able to define what constitutes the business of banking, the OCC is trying to make charters “reflective of the way that Americans consumer financial services today,” he said.

Tech Advocate

Brooks’ proposals are long-awaited by the technology sector.

“It’s one I think a lot of the companies we work with have been hoping to see from the federal government” for several years, said Kara Calvert, a partner at Franklin Square Group, a lobbying firm that represents fintech companies, including Coinbase during Brooks’ time there.

“The payments charter is probably the biggest opportunity out there” in terms of helping banks and nonbanks work better together but the OCC could tackle many smaller but equally important changes as well, Calvert said.

Those efforts are likely to draw the same opposition from state regulators faced by his predecessor. Otting’s attempt to push forward a “fintech charter” that didn’t provide for deposit-taking got blocked in court after states accused the OCC of regulatory overreach.

Several of Brooks’ former colleagues said he has the legal chops and people skills to win over even skeptics.

Brooks has proven able in the past to craft “really elegant solutions that are very data-focused but are also explained in a way that is very digestible,” said Hermine Wong, Coinbase’s chief of staff and counsel for trust and risk, and a former Brooks protégé.

The creation of the Crypto Ratings Council, a signature achievement during Brooks’ tenure at Coinbase, speaks to his ability to bring together many parties to address an inefficiency in the financial system, said Kristin Smith, executive director of the Blockchain Association, a crypto industry trade group.

The group is a coalition of cryptocurrency companies that in 2019 developed a scale and methodology for evaluating the regulatory risk of digital tokens for listing on exchanges.

Brooks made it a navigable process, drawing on existing guidance and case law to come up with a repeatable methodology “to bring more clarity to the crypto industry for token listing,” Smith said.

Advocates’ Concerns

Consumer advocates, however, question Brooks’ willingness to take their perspective into account.

It was a foreboding sign to consumer advocates, that on Brooks’ first day as acting comptroller, he released a final rule reinforcing the ability of banks to export loan interest rates to jurisdictions with lower usury caps.

He also raised the eyebrows of consumer advocates with a June 1 missive to governors and mayors advising that continued lockdowns risk harming the banking industry.

The focus was on “protecting the interests of banks rather than the interests of the small businesses that rely on those banks to be able to maintain the livelihood of the people who make up those small businesses,” said Paulina Gonzalez-Brito, executive director of the California Reinvestment Coalition.

The CRC already had concerns about Brooks based on its experience with him, Mnuchin, and Otting, during their time at OneWest.

The CRC was among the public interest groups opposing OneWest’s 2014 merger with CIT Group, citing concerns about the bank’s foreclosure record and alleged redlining that discriminated against minority homeowners.

“It seems like the history of Brian Brooks is protecting the interests of banks and protecting the banks from scrutiny, and now we’re seeing that same interest and those same types of priorities at the OCC,” Gonzalez-Brito said.

Other consumer advocates are more optimistic about working with Brooks, even if their policies are likely to be in opposition.

“He is familiar with the advocacy community,” and has relationships with many consumer advocates, “including quite a lot of people who see the world very differently than he does,” said Jesse Van Tol, chief executive officer of the National Community Reinvestment Coalition.

The larger question is whether Brooks will emerge as a highly political actor in lockstep with the Trump administration’s broader deregulatory priorities, he said.

“I think he will chart his own path but certainly what we’ve seen from him so far is continuing to push this administration’s agenda,” Van Tol 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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