On May 10, the Conference of State Bank Supervisors (CSBS) announced a series of initiatives (branded as Vision 2020) designed to modernize state regulation of non-banks. The announcement specifically calls out financial technology firms and appears to be an attempt by state regulators to provide an alternative to the special purpose national bank charter the OCC has proposed to make available to financial technology companies (“fintech charter”).
The CSBS claims that by 2020 state regulators will have adopted “an integrated, 50-state licensing and supervisory system, leveraging technology and smart regulatory policy to transform the interaction between industry, regulators and consumers.” The CSBS further claims that the Vision 2020 initiatives “will transform the licensing process, harmonize supervision, engage fintech companies, assist state banking departments, make it easier for banks to provide services to non-banks, and make supervision more efficient for third parties.” Lofty goals to say the least, and ones that the financial services industry most certainly will support. It remains to be seen, however, whether Vision 2020, which actually includes initiatives that are already in use or have been underway for some time, will move us further towards these goals by 2020, or even later.
Among others, Vision 2020 purports to include the following: 1) a redesign of the Nationwide Multistate Licensing System (NMLS); 2) harmonization of multi-state supervision; 3) formation of a fintech industry advisory panel focused on lending and money transmission, with the goal of identifying challenges related to licensing and multi-state regulation and providing feedback on state efforts to modernize the regulatory structure; 4) enhancing the CSBS regulatory agency accreditation program; 5) facilitate banks providing services to non-banks; 6) increasing efforts to address de-risking; and 7) supporting federal legislation facilitating coordinated supervision of bank third party service providers by state and federal regulators.
It bears noting that the redesign of the NMLS (called NMLS 2.0) has been underway (even if not formally) for some time, and long before the OCC first proposed offering a fintech charter. Moreover, 62 (and counting) state agencies over more than 40 states and territories already use the NMLS for the administration of non-mortgage licenses. While migration by states to the NMLS for administration of its non-mortgage licenses will no doubt continue, the driver for that was not the need to find a way to regulate fintech companies, but rather the need for significant improvements to NMLS’s functionality and utility.
The CSBS has also been focusing on the harmonization of multi-state supervision for many years. In the mortgage industry, for example, these efforts have included formation of the Multi-State Mortgage Committee, publication of a model mortgage exam manual, publication of model examinations guidelines, and promotion of model state laws. Despite these efforts, those in the mortgage industry can attest to the fact that harmonization and uniformity is still more aspirational than a reality.
Some have suggested that Vision 2020 is intended to entice fintech companies to elect state regulation over seeking a fintech charter. Whether or not that is the case, Vision 2020 certainly is an attempt by the CSBS to make the case that state regulators are in the best position to regulate fintech companies and that they are prepared to modernize and harmonize their laws and regulations. Given the significant harmonization and modernization work that still remains to be done in the mortgage industry after many years of effort, I have significant reservations about the likelihood of “an integrated, 50-state licensing and supervisory system” by 2020.