What Credit Unions Need to Know About the Process for FinTech Companies to Obtain Bank Charters

Bank charters for FinTechs will trigger increased competition for financial institutions. NWCUA’s David Curtis breaks down the process.

8/7/18Picture of person with tablet and fintech illustration

The Office of the Comptroller of the Currency (OCC) has announced it will start accepting applications for bank charters from non-depository financial technology (FinTech) companies that engage in the business of banking.

In its policy statement, the OCC stated it will consider applications provided they meet the requirements and standards for obtaining a charter. The policy includes considering applications for Special Purpose National Bank (SPNB) charters from FinTech companies that engage in the business of banking but do not take deposits.

FinTech companies are increasing their popularity through mobile apps in the areas of lending, payments, money transfers, wealth management, cryptocurrencies, p2p lending, crowd funding, and other services.

The OCC also stated that if a FinTech company had plans to take insured deposits, it would be required to obtain FDIC insurance and should apply for a full-service national bank charter.

A SPNB is a national bank that engages in a limited range of banking or fiduciary activities, targets a limited customer base, incorporates nontraditional elements, or has a narrowly targeted business plan. Special purpose national banks include those banks whose operations are limited to certain activities, such as credit card operations, fiduciary activities, community development, or cash management activities. Special purpose national banks also include national banks that engage in limited banking activities, including one or more of the core banking functions of taking deposits, paying checks, or lending money.

While the OCC has stated it is accepting applications for FinTech SPNBs, the process will take some time to complete before the first charter will be granted. The application process consists of four phases:

  1. A prefiling phase: Potential applicants engage with the OCC in formal and informal meetings to discuss the proposal, the chartering process, and application requirements.
  2. The filing phase: The organizers submit a complete application.
  3. The review phase: The OCC reviews and analyzes the application to assess whether the proposed bank has a reasonable chance of success, will be operated in a safe and sound manner, will provide fair access to financial services, will promote fair treatment of customers, will ensure compliance with laws and regulations, and will foster healthy competition.
  4. The decision phase: The OCC decides whether to approve a charter application. The decision phase includes the preliminary conditional approval stage, in which the OCC imposes requirements and conditions for receiving a charter; the organization stage, in which the bank raises capital and prepares for opening; and the final approval stage.

During the review phase, the applicant must post notice of the charter application in the community where the proposed bank will be located. Since many SPNBs will operate online, the OCC will consider and discuss alternative locations and methods for posting the notice with applicants.

The public will have a 30-day comment period, which starts after the publication of the notice. Then the OCC will have 120 days to make a decision on a complete and accurate application. Various factors that the OCC will take into consideration for the application include:

  • Organizers, management, and directors
  • Business plan
  • Capital and liquidity
  • Financial inclusion
  • Contingency planning
  • Coordination with other regulators
  • Continuation of remedies

After the OCC issues final approval and the bank opens for business, the OCC will supervise the SPNB, as it does all other national banks, under a scheduled supervisory cycle, including on-site examination and periodic off-site monitoring.

The OCC sets high expectations for the entities it supervises. Like all de novo institutions, newly chartered SPNBs will be subject to rigorous ongoing oversight to ensure that the bank’s management and the board of directors are properly executing their business strategy and the bank is meeting its performance goals.

Questions may be directed to David Curtis, Northwest Credit Union Association Director of Compliance Services at dcurtis@nwcua.org.