A turf war is brewing between US state and federal regulators over oversight of the financial technology sector after New York's top watchdog sent a stinging letter to the Office of the Comptroller of the Currency (OCC), telling it to back off plans for a national bank charter for fintech firms.
In December the OCC said that it would begin accepting applications from fintech companies to become special-purpose national banks. The plan came after sustained lobbying from many in the fintech community because it will enable them to operate across state lines without having to deal with multiple jurisdictions.
But the New York State Department of Financial Services (NY DFS) has hit out at the OCC, with Superintendent Maria Vullo warning that it "should not use technological advances as an excuse to attempt to usurp state laws that already regulate fintech activities".
In a letter (PDF) replying to the OCC's request for comment, Vullo says: "The imposition of an entirely new federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape will invite serious risk of regulatory confusion and uncertainty, stifle small business innovation, create institutions that are too big to fail, imperil crucially important state-based consumer protection laws and increase the risks presented by nonbank entities."
The eight page letter argues that, unlike state regulators, the OCC has no experience of regulating nonbank financial institutions and that the National Bank Act does not give the OCC the authority to create its proposed charter.
Vullo also insists that, contrary to the OCC's stated intent, a national charter will stifle rather than encourage innovation because it will offer an avenue for larger firms to control the development of tech in the FS industry, harming existing banks and small businesses.
Connected to this is the worry that a national charter would encourage large 'too big to fail' institutions - a small number of tech-savvy firms that dominate different types of financial services simply because they are able to get a national charter.
The letter also questions the OCC's competence, noting that "lax regulation" on the federal level contributed to the recent economic crisis, proving "devastating" for the finacial system and American people.
Concludes Vullo: "In sum, the proposed "fintech" charter substitutes and effort to appear innovative for a complicated, problematic, new regulatory regime. NY DFS opposes any new regulatory regime that impacts state regulation and the protection of our consumers and markets. The proposed OCC special purpose charter fails on each ground."
Whether the letter has any impact is questionable, with the OCC insisting that it has the authority to push on with its plan.