A storm is brewing between state regulators and the OCC over fintech licensing

A leading association of state banking regulators is trying to put the U.S. national banking regulator in its place on the issue of fintech registration.

Per a Dec. 22 filing, the Conference of State Bank Supervisors, or CSBS, says the impending approval of Figure Technology's bank charter a bridge too far. Figure operates blockchain-backed lending and investment services. It announced its application to the Office of the Comptroller of the Currency for a charter at the beginning of November. At the time, CEO Mike Cagney noted the relative convenience of a national charter, saying:"we'll have over 200 state licenses next year without such a charter."

The OCC, which is the Treasury office responsible for national banks, first floated the idea of special purpose bank charters for fintech firms back in 2016 under then-Comptroller Thomas Curry. State regulators including the CSBS and New York's Department of Financial Services, or NYDFS, immediately dogpiled the proposal as operating in defiance of the definition of "bank," as well as in overstepping the OCC's own charter. The CSBS, for instance, resolutely refers to the OCC's work as "the Nonbank Charter Program."

From the perspective of the CSBS, the situation only got worse in July of 2018, when then-Comptroller Joseph Otting said the OCC was open for applications. CSBS filed another suit later that year.

The court ultimately dismissed the case on the grounds that: "CSBS continues to lack standing and its claims remain unripe." In that decision, however, the court attributed that "unripeness" to the fact that no fintech had yet applied for a charter, much less received one.

A month later in the final judgment in the NYDFS case, a Manhattan judge found that the OCC's statutory authority "is set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits," dealing a blow to the OCC. 

But while the OCC has appealed the NYDFS case to the second circuit, the CSBS is using the Figure application to attack the whole program, seeking:

"Declaratory and injunctive relief declaring the OCC’s Nonbank Charter Program and the Figure Charter unlawful and enjoining the OCC from soliciting, accepting, or approving applications for Nonbank Charters, including the Figure Charter Application."

Margaret Liu, CSBS's senior vice president and deputy general counsel, told Cointelegraph that Figure's particular business is not the problem. The firm is just the first fintech to get this far in the OCC's licensing, which "made the issue more than ripe." She continued: “The timing has to do with the fact that a company has submitted a final application. This is not about Figure.”

Central to the argument is whether a financial entity that does not hold deposits, like Figure, can be considered a bank and is thus subject to the OCC's national jurisdiction. Back in 2018, Otting's announcement maintained that the OCC already had the authority to charter "companies that engage in one of the core banking functions (paying checks, lending money, or taking deposits)," which did not necessarily require those banks to take deposits. This frees those banks from requirements like holding FDIC insurance and possibly oversight from the Federal Reserve Board.

The CSBS disagrees. “We’re suing for the same reason we’ve been suing all along” Margaret Liu told Cointelegraph. “Being a regulator does not mean that you get to redefine what a bank is.” Yesterday's complaint argues: 

"It is well settled by court precedent, federal banking laws, and historical chartering practice that to lawfully commence the 'business of banking' under the NBA, a national bank must, at a minimum, engage in receiving deposits and apply for and obtain federal deposit insurance."

A representative for the OCC declined to comment on the litigation. 

Back in September, the CSBS announced a new program that would simplify the registration process for national firms looking to get licenses in many states. At the time, Brooks congratulated the conference on:

"Recognizing what we have been saying for years that for national financial service businesses, it makes little sense to have a patchwork of regulation and supervision. While the efforts alleviate the inherent challenges facing a system based on 50 state laws and licensing regimes, only federal law and the uniform regulatory framework it provides fully addresses these issues."

Clearly the CSBS and OCC have different ideas about what a uniform regulatory framework means.

Brooks, for his part, has made the OCC a beacon of crypto regulation at the federal level since joining the office from Coinbase's legal team back in March. Though President Trump recently nominated him to become full comptroller, the appointment is still awaiting Senate confirmation. With a new Congress convening in less than a month, there is still no word on whether the Senate will see fit to schedule it.