New Fintech Rules? The Yin and the Yang
Along with all the turmoil occupying our headlines these days, comes some under-the-radar discussion of potential new rules that could affect the financial sector — or at least the financial technology or “FinTech” sector.
What’s happening, as Forbes recaps, is “the Office of the Comptroller of the Currency (“OCC”), a division of the U.S. Department of the Treasury, announced last year that it will consider granting financial technology (or “FinTech”) companies Special Purpose National Bank Charters, and is now actively engaging industry in a dialogue on the topic.
As the article continues, “quite prudently, the OCC has recently opened an Office of Innovation. We are encouraged that the OCC is taking strong proactive steps to engage the industry. In order for the OCC to have a strong pulse and understanding of the technological advancements that are constantly taking place, it will be important for the OCC to have an open and on-going dialogue with the FinTech community. However, without some kind of regulatory ‘sandbox’ or other form of safe harbor, interaction with the Office of Innovation could put FinTech companies at risk of inadvertent public disclosure of unique business models, waiver of certain legal rights or admission of inadvertent regulatory violations.”
In other words, one might inadvertently overregulate something like the next PayPal or Kickstarter before they could begin.
As a Bloomberg article on the same topic notes, “the OCC’s requirements for business plans, capitalization and investor participation may be particularly problematic for a start-up or a relatively small fintech company.”
The article notes that despite some trepidation, “an OCC charter could provide benefits for some fintech companies. An online platform lender could export the interest rate of its home state and avoid usury caps in other states. A money transmitter would no longer need to seek a separate license in every state in which it operates. And the OCC’s seal of approval could make a company more attractive to consumers or to bank partners.
“But there are other obstacles to fintech innovation in the charter proposal, such as the yet-unspecified mandate for capital reserves that are a routine part of bank regulation, Veronica McGregor, a partner in the fintech practice of Goodwin Procter LLP, told Bloomberg BNA. ‘The two-guys-and-an-Etch-A-Sketch companies won’t be able to meet the capital requirements,’ she said.”
Regardless, it’s certain that means of payments, and “money transmission,” to paraphrase the article, are going to continue to evolve and change.
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