Earlier this month, the OCC announced it would be accepting applications from financial technology companies for a new special purpose national bank charter.
As we previously reported in PaymentFacilitator.com, the news is an acknowledgement that fintech firms are a rising segment of the economy and increasingly relied upon by consumers for financial services. But obtaining the charter will be costly and come with its own strict set of requirements. So what types of companies are likely to benefit from obtaining such a charter?
One of the distinct advantages for some companies will be the fact that it is a federal charter. Companies that have previously been licensed on a state-by-state basis could find regulatory relief in reporting to a single regulator. Companies that are required to be licensed as money transmitters in some states are a prime candidate.
“I think it is fair to say that one of the attractive features of the federal fintech charter is the potential to gain pre-emptive effect with regard to state money transmitter licensing because state money transmitter licensing is not standardized and the requirements differ from state to state,” Cliff Stanford, an attorney with law firm Alston & Bird who is advising clients regarding the charter, told PaymentFacilitator.com.
The costs and time associated with both obtaining and maintaining state-by-state licensing is significant, Stanford said.
“The notion of having a single federal charter for a company that is engaged in money transmission is attractive because – while you still have to pay fees, you still have examinations, and there are regulatory requirements that are pretty strict under the OCC’s proposal – there is nevertheless one source of those and one examiner, not many. And so there is some clarity and simplification that comes from that,” he said.
However, Stanford cautions that a federal charter does not exempt a company from following any state law. State consumer protection and deceptive practice laws, for example, would still apply.
Ultimately, deciding whether to apply for the federal charter will require companies to perform a cost-benefit analysis and determine whether they have the capital, the risk management infrastructure, and the appropriate business model to benefit from the charter, Stanford said.