The U.S. financial services regulatory system is the most comprehensive—and complicated—system n the world. It has multiple federal agencies in the executive branch. This includes government sponsored enterprises, the Federal Reserve, and state regulatory authorities in the spectrum. We’ve discussed this at length in member research this year. These regulators have specific and often overlapping responsibilities to govern the industry in general. They also regulate the various forms of banks and capital markets specifically. At the time, we reviewed regulator websites and published materials. They indicated that U.S. regulatory scrutiny remained mostly focused on the chartered institutions. But we speculated that some changes would occur over the next several years. These changes would occur as the role of fintechs (and big techs) becomes clearer to the overlords.
OCC and Regulations
Around 2016 and 2017, the Office of the Comptroller of the Currency (OCC) proposed the Special Purpose National Bank Charters for Fintech Companies. It would have created a path to neo-bank charters. We believed it was a reasonable direction. The OCC recognized the impact technology was having on the delivery of financial services. Regulators should care about risks and trends that might be destabilizing. Since fintechs had been seeking new and better ways of delivering services, either with bank collaboration and partnerships or without, it seemed reasonable that the OCC would want to have more visibility into and control over how that can be done. Eventually, the Conference of State Bank Supervisors (CSBS), a nationwide organization composed of state banking regulators in the U.S., brought forth a lawsuit challenging the OCC’s fintech bank charter initiative and subsequently the proposal was dropped.
The Future for Regulations
This referenced article in Finextra provides a glimpse into how that will start to unfold as the OCC, the primary regulator of nationally chartered commercial banks, will be setting up a financial technology unit starting in 2023. The purpose is to help the regulator keep up with rapid technology change. As the stated purpose of financial regulation is to ensure safety and soundness of the financial system, as well as promote healthy competition, this would seem perhaps a bit late in coming but certainly expected.
Generally speaking the U.S. has been relatively conservative in financial regulations since the Dodd Frank days (2010+), certainly as compared to European counterparts in the UK and the EU, so we’ll see where this goes.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
