On June 25, 2020, Performing Comptroller Brian Brooks introduced that the Workplace of the Comptroller of the Foreign money (the “OCC”) intends to introduce the primary in a sequence of not less than two nationwide bank charters for funds firms this fall. This “Payments Charter 1.0” can be a “national version of a state money transmission license” that preempts state licensing necessities and offers firms with a nationwide platform regulated by the OCC. Brooks argues {that a} nationwide bank constitution would cut back the regulatory burden on funds firms working throughout a number of state jurisdictions. In his view, nationwide funds platforms are crucial to an built-in nationwide economic system.
Funds firms offering know-how processing companies in partnership with OCC chartered banks will likely be properly positioned to profit from Cost Constitution 1.0, particularly if such firms have enterprise models that depend on licensing in fifty states.
Brooks anticipates that the OCC will launch “Payments Charter 2.0” roughly18 months after releasing “Payments Charter 1.0”. This second constitution is probably going to present funds firms direct entry to the Federal Reserve cost system. The OCC might want to work intently with the Federal Reserve to design a constitution that’s each legally acceptable to every company and sensible for regulators to observe and implement. Brooks makes the authorized argument that funds firms chartered by the OCC are entitled to Federal Reserve entry as a result of they qualify as nationwide banks “eligible for deposit insurance.” In his view, “eligibility” for deposit insurance coverage is ample to set off Federal Reserve entry.
This authorized argument is according to Brooks’ and the OCC’s longstanding place that the definition of a “bank” contains any entity considerably engaged in lending, deposit taking or funds. That’s to say, an entity doesn’t have to do all three actions to be a bank. The Convention of State Bank Supervisors and prominently the New York Superintendent of Monetary Providers Linda Lacewell, disagree with Brooks’ and the OCC’s strategy. In accordance with Lacewell, entities that don’t take deposits usually are not banks. She factors to a 2019 choice within the U.S. District Court docket of the Southern District of New York blocking the OCC’s fintech constitution primarily based on issues that an OCC had exceeded its authority underneath the Nationwide Bank Act (learn extra right here). Whereas the OCC has appealed this 2019 choice, the ruling’s nationwide prohibition on the fintech constitution may successfully stop the adoption of the proposed nationwide constitution for funds firms. Extra judicial scrutiny additionally could be anticipated.