Washington is easing financial regulation as a battle rages
over the supervision of the fintech wave.
President Donald Trump backs the broadly deregulatory
Financial Choice Act, which passed the House of Representatives
on June 8. Four days later the Treasury Department issued the
first in a series of reports on core principles,
detailing areas for reform that wont require
As the regulatory rollback gets underway, states are in
sharp disagreement with Washington-based watchdogs over how to
oversee the heady, financial technology sector, known as
fintech. The Office of the Comptroller of the Currency
which supervises 1,400 national banks and federally chartered
savings institutions is facing a court challenge from
state regulators who say one of its pro-fintech initiatives is
Its a flare-up of long-simmering jurisdictional
The Treasury report calls out a fundamental flaw:
regulatory duplication, overlap, and fragmentation.
In other words, too many regulators. Its a concern that
has prompted proposals such as merging the Commodity Futures
Trading Commission and Securities and Exchange Commission, or
reshuffling the responsibilities of bank regulators including
the OCC, Federal Reserve and Federal Deposit Insurance
Absent congressional action to consolidate regulators with
similar missions, the Treasury Department wants to see them
work together to increase coordination of supervision and
examination activities, as well as consider
coordinating enforcement actions.
Further complicating financial regulation and any
attempt to overhaul it is the fact that there are 50
states, each able to charter banks and enforce consumer and
investor protections. The states, in their fragmented way, are
the principal supervisors of the insurance industry.
As if to stand up for this division of state and federal
powers known as federalism, and not be overlooked by those who
are Washington-centric, the Conference of State Bank
Supervisors is taking aim at the special-purpose fintech
charter offered by the OCC.
In a 31-page complaint filed April 26 in the U.S. District
Court for the District of Columbia, the CSBS says the
OCCs oversight is limited to the business of
banking, and that its fintech charter violates the
Constitutions Tenth Amendment, which assigns to the
states any powers not delegated to the federal government.
Congress has not specified a nonbank charter for fintech,
nor expressed intent to preempt state law, according to the
The chartering idea grew from what former comptroller Thomas
Curry called a responsible innovation initiative,
or a pathway for entrepreneurs to partner with banks or to
potentially become banks themselves, without running afoul of
old law that is difficult to apply to new circumstances.
Curry stated a desire to keep the U.S. competitive in a
global fintech environment marked by the rise of China-based
giants, including Ant Financial Services Group and three others
in the top five of KPMGs 2016 FinTech 100. U.S. firms are
also up against explicit government support of fintech
experimentation in Australia, Singapore, and the U.K.
The battle is unfolding amid a changing of the guard.
Curry left office on May 5, with Keith Noreika acting as
comptroller pending Senate confirmation of nominee Joseph
Otting. Otting was CEO of OneWest Bank when Treasury Secretary
Steven Mnuchin was its chairman.
At odds are perceptions of innovation. CSBS President and
CEO John Ryan said in an April announcement of the groups
complaint that state regulators already oversee a vibrant
financial services marketplace, supervising 75 percent of
U.S. banks, as well as nonbank mortgage, money transmission,
and consumer finance companies. He said the regulatory
structure has produced a robust platform for
Curry, meanwhile, sees outreach and technical assistance
from the OCC providing a needed boost to innovation.
The outcome may turn on whether the nonbank fintechs fit the
business of banking definition.
The business of banking is dynamic, and I would urge
caution to anyone who wants to define banking as a static
state, Curry said in an April speech.
Mercatus Center senior research fellow Brian Knight,
blogging about the CSBS case at FinRegRag.com, says the court
will have its say one way or another, but in the court of
public opinion (and policy), it is often as important to
convince people that your vision of the world is
Social Finance, the online lender known as SoFi, didnt
wait for a resolution. In June the company filed to form an
FDIC-insured industrial loan company in Utah chalking
one up for a state-chartered alternative. Quick to oppose the
application was the Independent Community Bankers of America,
which also denounced the fintech charter.
A court decision will not please everyone, or fix the
fragmentation problem, but neither will it impede