'Feds Boost Innovation And Begin Occupying The Field: Treasury Department Report & OCC Fintech Charter'

On July 31, 2018, the Treasury Department released its report on regulatory reform for nonbank financial institutions, financial technology and financial innovation (Treasury Report). Among other issues, it recommended the issuance of FinTech national bank charters, the repeal of the Consumer Financial Protection Bureau's (CFPB) payday rule, and the "updating" or adoption of Federal guidelines on a range of activities from nonbank lending to data breach notification. Within hours, the Office of the Comptroller of the Currency (OCC) announced that it will begin accepting applications for FinTech special purpose national bank charters. Significant time will pass before other reforms recommended by the Treasury are adopted or any FinTech company begins to operate under a national bank charter. Yet these moves by the OCC and Treasury are crucial to lay the groundwork for a Federal regulatory framework that is not only more hospitable to industry, but also potentially immediately useful in forestalling stringent and fragmented State regulation.

Treasury Reform Recommendations

The 222-page Treasury Report, titled A Financial System That Creates Economic Opportunities - Nonbank Financials, Fintech, and Innovation, is the fourth and final report in a series of evaluations of the financial regulatory framework mandated by Executive Order from President Trump.

Directed primarily at financial innovation, the Treasury Report encouraged the OCC's FinTech national bank charter initiative and recommended that Federal and State regulators establish a unified "regulatory sandbox" for FinTech entities to innovate without fear while abiding by certain guidelines and oversight. The Report applauded Vision 2020, a multi-State coordination effort by the Conference of State Bank Supervisors (CSBS) that includes establishment of a Fintech Industry Advisory Panel to advance and harmonize State FinTech regulation. The Report supported unified State licensing and supervisory regimes, including a State license passporting regime. If financial regulators are unable to achieve timely, meaningful harmonization, however, the Report recommended that Congress enact legislation to establish uniform processes and preempt State laws if necessary. Overall, while encouraging regulatory harmonization, many of the Federal guidelines recommended by the Report ultimately pave the way for Federal preemption.

The Report nevertheless credited the role of State regulation in other areas...