Federal Regulators Reach Deadline to Identify FinTech Barriers

A federal review that could influence how FinTech firms partner with banks, pursue charters and reach the payment system comes due Monday (Aug. 17), although the public may not get to see the results.

President Donald Trump’s May 19 executive order gave six financial regulators 90 days to identify regulations, guidance, supervisory practices and application procedures that may unnecessarily impede FinTech competition.

The mandate covers the Consumer Financial Protection Bureau, Securities and Exchange Commission, National Credit Union Administration, Commodity Futures Trading Commission, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

The order reaches into the infrastructure behind many of the industry’s biggest strategic decisions. It directs the agencies to examine obstacles facing FinTechs that want to partner with regulated financial institutions. It also covers application processes for bank charters, credit union charters, deposit insurance and other federal licenses or registrations.

These processes help determine whether a FinTech remains a technology provider, works through a sponsor bank or becomes a regulated institution itself.

A company that relies on a sponsor bank gains access to regulated financial services without carrying the full cost of becoming a bank. It also accepts dependency on another institution’s compliance standards, risk appetite and regulatory relationships. A charter can provide greater control, but the application, capital and operating requirements create a higher threshold.

Even modest procedural changes could alter that calculation.

The OCC and FDIC warrant particular attention. The OCC controls national bank charter applications while the FDIC determines whether qualifying institutions receive federal deposit insurance. Faster decisions, clearer application standards or more predictable expectations could lower the uncertainty surrounding the charter route. Changes to third-party risk supervision could also affect how banks evaluate FinTech partners.

Monday’s deadline does not require regulators to release their reviews. The executive order requires each agency to complete its examination within 90 days, then take steps based on its findings within 180 days of May 19. That second deadline arrives Nov. 15.

At least one agency has already shown part of its process. The CFTC issued a request for information in June seeking examples of rules, orders and staff guidance that may impede FinTech partnerships or complicate registrations. The commission said the responses could support amended guidance, policy statements or regulations.

Another regulatory clock is also running. The order requested that the Federal Reserve report to the White House by Sept. 16 on whether uninsured depositories and nonbank FinTechs could receive more direct access to Federal Reserve payment accounts and services.

The Fed must consider its legal authority, possible risk controls and barriers that could require legislation. Where existing law permits direct access, the order also asks the Fed to establish transparent application procedures and decide complete applications within 90 days.

Direct access could reduce some firms’ reliance on bank intermediaries for clearing and settlement. It would also require regulators to decide which nonbanks can safely enter infrastructure traditionally reserved for regulated depository institutions.

The immediate development is procedural, but the commercial consequences could be substantial. Washington has now had 90 days to identify the barriers that helped create the current queue of charter applicants and bank-dependent FinTechs. The next signal will be which barriers regulators decide to remove.

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