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Federal agencies, states compete to be fintech regulator

CFPB panel seeks fintech licensing authority

Congress should give the CFPB authority to license some fintech banks, or clarify that the OCC has that authority, a CFPB panel advised.
Congress should give the CFPB authority to license some fintech banks, or clarify that the OCC has that authority, a CFPB panel advised. (Bill Clark/CQ Roll Call file photo)

A federal banking regulator’s grant of the first national trust bank charter to a cryptocurrency startup may touch off a turf war over which agency is best suited to oversee the burgeoning financial technology market.

The Office of the Comptroller of the Currency, a unit of the Treasury Department, on Jan. 13 approved South Dakota-based Anchorage Digital Bank NA to hold cryptocurrencies for customers, making it the first federally regulated bank for digital assets such as Bitcoin.

The approval came just days after a Consumer Financial Protection Bureau task force released a 900-page report that recommended Congress authorize the CFPB to issue national licenses to certain fintech firms.

Sanford M. Brown, a former OCC attorney who is now a partner with Alston & Bird’s financial services practice group in Dallas, said the task force’s suggestions came “out of the blue,” given that OCC has previously laid the groundwork for fintech licensing. OCC, which oversees the majority of U.S. banks, has issued other types of fintech licenses and launched efforts to promote domestic fintech advances.

Brown and others say the OCC’s action and the CFPB’s ambitions put those agencies at odds with each other and with state financial regulators, who say they have primary jurisdiction over fintech firms within their borders.

The OCC’s approval means that Anchorage Digital won’t need authorization from financial regulators in each individual state. Prior to the approval, the company was licensed in South Dakota to hold client cash deposits and cryptocurrency. Its customers are primarily institutional investors that transact in digital assets, including Bitcoin, Bitcoin Cash, Ethereum, Zcash and Filecoin.

Congress’ decision

Just who wins the fight for authority of licensing oversight could be decided by Congress. The CFPB task force said lawmakers should shed more light on the OCC’s authority to grant charters to nonbank fintechs.

“If Congress elects not to authorize the Bureau to issue federal licenses, it should clarify that the OCC has that authority,” the CFPB-appointed panel said. “This alternative option would ensure that fintechs operating nationwide companies are subject to a single set of laws.”

The task force’s recommendation ignited a debate among regulators, attorneys and industry observers about the role of the federal government in licensing fintechs and which agency should be in charge.

Alston & Bird’s Brown says there is merit to having one federal agency in charge of chartering fintechs that operate nationwide rather than requiring those firms to obtain 50 separate state licenses. The OCC as a national regulator is better suited for that job than the CFPB, which plays a much smaller role in bank supervision, he said.

The OCC has taken significant steps over the past few years to issue national fintech charters, efforts dating to the Obama administration to come up with a viable federal charter system. State financial regulators have sued the agency, claiming it is overstepping its powers. Those suits are pending.

The comptroller’s office balked at the CFPB task force’s suggestion. The day after the task force report came out, then-acting Comptroller Brian P. Brooks said that the nation needs federal charters for fintechs to effectively serve the financial needs of consumers under a single set of rules, and that the OCC is best prepared to issue such licenses.

Brooks said federal law gives the OCC the power to grant national charters to companies engaged in lending, payments or deposit-taking.

“In its wisdom, Congress in the Dodd-Frank Act separated chartering and prudential supervision from consumer protection enforcement, assigning chartering authority to the OCC and specific consumer protection enforcement authority to the CFPB,” he said. “The additional protections implemented following the last financial crisis put two cops on the beat and separated those responsibilities so neither would be compromised in service to the other. That dynamic should be preserved.”

Brooks stepped down as acting comptroller on Jan. 14.

Level playing field

The Conference of State Bank Supervisors, which has taken the OCC to court over its plans to issue national fintech charters, was also critical of the CFPB task force’s report, albeit for different reasons.

In a statement to CQ Roll Call, CSBS President John W. Ryan said the report and its recommendations “fail to recognize the critical role that state regulators play in protecting consumers and facilitating safe innovation.” He said the suggestion of a federal fintech license under the guise of consumer protection is particularly troublesome, adding that a national license “would prioritize convenience for a few established players over consumer protection, innovation and a level playing field.”

An attorney who closely monitors regulators’ approach to fintechs, Norman H. Roos, said in an interview that the OCC “is the chartering authority at the national level. Why bring in another agency? It is counterintuitive.”

Roos, senior counsel at the Robinson and Cole law firm, questioned the need for a national fintech chartering authority at all. He said state regulators, working through the CSBS, have boosted state collaboration to smooth multistate fintech licensing efforts.

Jo Ann Barefoot, a former deputy comptroller of the currency who is now CEO of the policy group Alliance for Innovative Regulation, also praised state regulators’ strides to ease the burdens of state-by-state licensing. She said it remains an extremely time-consuming, onerous and expensive process “and definitely adds to the many barriers that confront promising fintechs.”

Barefoot said she sees merit in either agency taking the lead role in licensing. CFPB already regulates certain types of nonbank financial firms, and only the OCC does chartering as well as regulation and supervision, “so that could argue for them in that role.”

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