The evolving Fintech regulatory environment

Preparing for the inevitable

Financial technology (Fintech) firms have won over many investors and consumers with innovative product and service offerings that are often less costly, more convenient, or less complex than many traditional bank offerings. However, as they grow larger in popularity, Fintech firms face more and more scrutiny from federal and state regulators.


In recent years, Fintech companies looking to offer bank-like products or services across state lines have been obligated to apply for multiple state licenses, a time-consuming and complex process. This could change with a recent announcement by the Office of Comptroller of the Currency (OCC). On December 2, 2016, the agency issued a white paper—the third in its Fintech series following white papers in March and October 2016—announcing that it is proposing to create a special purpose national bank charter available to Fintech companies that provide non-deposit banking products and services. 1 The paper requests public comments on 13 questions specific to the proposal, which are due by January 15, 2017.

Consistent with the OCC’s whitepaper and an industry forum it hosted in June 2016, 2 the Securities and Exchange Commission (SEC) and the Federal Reserve Board (FRB) have also conducted workshops and forums focused on maintaining a secure financial system while encouraging innovation. In addition, as discussed below, the Consumer Financial Protection Bureau (CFPB) has taken enforcement actions against Fintech marketplace lenders and payment firms, and recently began accepting complaints on consumer loans from marketplace lenders. 3

Notwithstanding the OCC’s proposal to create a special purpose national bank charter available to Fintech companies, state regulators continue to license and supervise these companies, as well as enforce compliance with state laws, regulations, and supervision programs. Following the OCC announcement, Maria Vullo, superintendent of the New York State Department of Financial Services (DFS), announced her opposition to “any effort to federalize what states have been doing—and doing well—for over a century.” 3

Further, she stressed that any reliance on a federal Fintech regulatory framework “would be irresponsible if it were to ignore the states’ historical role and longstanding expertise in this arena,” adding that state regulators are “best positioned to continue to protect consumers” and ensure that Fintech companies are able to thrive within an approximately tailored regulatory framework. These concerns were echoed by the Conference of State Bank Supervisors, which criticized the OCC’s proposal as “fatally flawed.” As the comment period on the OCC’s proposal draws to a close, the agency will be required to respond to such feedback, and explain its views on the issues raised.

Federal regulations are not new, but direct federal supervision would be

Fintech firms are today not directly supervised, examined, or regulated by a federal banking regulatory agency. However, Fintech companies, including marketplace lenders and payment companies, are subject to certain federal regulations.

Consumer protection 

The CFPB, Federal Trade Commission (FTC), and the Department of Justice (DOJ) enforce certain consumer protection laws and regulations, and all can bring cases against Fintech companies for noncompliance. For example, the CFPB recently issued a consent order involving unfair, deceptive, or abusive acts or practices (UDAAP) against a company that operates an online payment platform, alleging that it misrepresented its data security practices to consumers.

In addition to the enforcement example, the CFPB has expressed concern with consumer data and privacy, and expects that consumers are informed of: how their data is being transferred through payment systems, what data are being transferred and who has access to this information, and how these data may be used and the potential risks to the consumer. Meeting these criteria requires that Fintech companies safeguard consumer information with robust data security measures and controls that are thoroughly tested on a regular basis to ensure they are working as prescribed.

Bank Secrecy Act/Anti-Money Laundering (BSA/AML)

Similarly, certain Fintech companies, such as those that qualify as a money service business (MSB), are subject to the same BSA/AML laws and regulations as other financial institutions, with enforcement by the Financial Crimes Enforcement Network (FinCEN) and the US Treasury Department’s Office of Foreign Assets Control (OFAC), as appropriate. There are consequences of significant fines or other enforcement action provisions for noncompliance.

Indirect supervision through bank and vendor relationships

However, all Fintech firms may be subject to BSA/AML and other safety and soundness requirements as a result of their relationships with banks. Regulators are asking banks to “know your customer” (KYC) and, in turn, bank management is asking the same question of Fintech firms, which banks underwrite, take deposits from, and transact with as customers. Banks look to them to have an established BSA/AML program. In addition, under the Bank Service Company Act, the FRB, FDIC, and OCC may indirectly examine Fintech companies that provide services to, or partner with, banking organizations through vendor relationships. For these companies, which are already subject to examinations, issues like cybersecurity, information security, guidance on third-party relationships, and AML have become top supervisory concerns.

Learn more about the possible future state of federal Fintech regulation, as well as how to design a risk-intelligent organization, by reading our full report The evolving Fintech regulatory environment: Preparing for the inevitable.


1 Office of the Comptroller of the Currency, “Exploring Special Purpose National Bank Charters for Fintech Companies,” (December 2, 2016), available at

2 Office of the Comptroller of the Currency, “Forum on Supporting Responsible Innovation in the Federal Banking System,” (June 23, 2016), available at

3 Consumer Financial Protection Bureau, “CFPB Now Accepting Complaints on Consumer Loans from Online Marketplace Lenders,” (March 7, 2016), available at

4 New York State Department of Financial Services, “Statement by DFS Superintendent Maria T. VulloRegarding the OCC Special Purpose National Bank Charters for Fintech Companies, (December 2, 2016), available at

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