September 29, 2017

Acting Comptroller of the Currency Keith Noreika was interviewed on the main stage of Finovate two weeks ago. Keith has been in this role since the beginning of May, and immediately got to work when the state of New York sued the OCC the week after he took his post.

The lawsuit was in response to the OCC announcing its plans to explore a special-purpose fintech charter, which was being developed by previous Comptroller Tom Curry. Keith downplayed the importance of the lawsuit, and supported the actions of the OCC which filed last month to dismiss the lawsuit, arguing that they haven’t launched anything and are just considering whether or not they should create a special charter and what it would look like.

While there has been much speculation in the fintech community of what this special charter would mean, Keith’s comments at Finovate made it clear that there is still much work to do – in his mind, the OCC is just getting their feet wet – or as Keith put it “only up to their ankles” in figuring this out.

Keith explained that one of the biggest hurdles for the OCC is that they expect a high likelihood of long term success for the businesses they regulate, and the very nature of startups runs contrary to a high probability of success. In Keith’s mind this is a challenge to solve, and the OCC needs to achieve a balance between reducing risk and encouraging innovation.

He believes that banks should not be slowed down too much from taking risks, but the OCC still needs to set the stage to mitigate potential losses to the system and hold people responsible as needed. Keith thinks one problem getting in the way of encouraging innovation is that Washington is too focused on the safety piece of the OCC’s mission, and not enough on soundness, which would allow for a somewhat higher risk tolerance and differentiation of risks.

One solution he suggested was to have different penalties for companies depending on how much systemic risk they introduce into the financial system. For vendors who fail or make a mistake but don’t introduce systemic risk, they would receive a something on the level of a “speeding ticket”, but nothing onerous. He also indicated that the OCC will be looking closer at payments given the systemic risk inherent in that business.

With the heavy focus on bank-fintech partnership at Finovate, Keith was also asked about how the OCC views these types of relationships. As a warning to fintech companies, Keith noted that some fintech companies may fall under the purview of some banking regulations depending on the services they provide. For banks, the focus is less on the partner and more concerned with making sure that banks weigh all the risks and have a back-up plan if the vendor fails.

In the meantime, the OCC is still accepting applications for full service charters – including both de novo traditional banks and fintech companies. Overall, Keith’s comments confirmed that despite the rumors, the special purpose fintech charter is still pretty far away.