Last July, the OCC announced its decision to accept applications for special purpose national bank (SPNB) charters from fintech companies. At that time we observed that, while not discussed in the materials released by the OCC, it appeared that a fintech company holding an SPNB charter would be required to be a member of the Federal Reserve System and be subject to oversight as a member bank. As a Federal Reserve member, an SPNB would have access to the Federal Reserve discount window and other Federal Reserve services.
According to a Reuters article published today, Federal Reserve officials have expressed reservations about allowing such access to fintech companies. Reuters reports that “many Fed officials fear that these firms lack robust risk-management controls and consumer protections that banks have in place.” The article quotes the President of the St. Louis Fed as having expressed concern that “fintech will be the source of the next crisis.” The Atlanta Fed President is quoted as having said that “almost none of [the fintech entrepreneurs he has talked to] has risk at the top of what they’re thinking about, and that makes me nervous.”
Despite its reported reservations about the SPNB charter, the Federal Reserve has acknowledged the increasing role played by fintech in shaping financial and banking landscapes and indicated that it is interested in developing policy solutions that would result in greater efficiencies and benefits to all parties. To that end, the Philadelphia Fed sponsored a conference last November on “Fintech and the New Financial Landscape.” At the conference, Ballard Spahr partner Scott Pearson was a member of a panel that discussed “The Roles of Alternative Data in Expanding Credit Access and Bank/Fintech Partnership.”