Countering OCC, states announce streamlined payments exams

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WASHINGTON — The Conference of State Bank Supervisors is launching a streamlined program for national payments firms to undergo a single exam, as state regulators continue to battle with the Office of the Comptroller of the Currency over who supervises tech-focused nonbanks.

The initiative, which the conference is calling MSB Networked Supervision, will be available to 78 payments and cryptocurrency companies that annually move more than $1 trillion in customer funds combined, the group said Tuesday.

The move comes as federal and state banking regulators have escalated their battle over which side is best equipped to license and oversee fintech and payments companies. Such firms typically lack a traditional banking charter, and therefore must register with multiple state regulators to operate nationally.

The bank supervisor group offered little detail about the streamlined supervision plan for money services businesses, but the group said it would be available starting next year.

"The single exam will be led by one state overseeing a group of examiners sourced from across the country," the CSBS said in a press release, although the group did not specify which state would lead the process. "By relying on experts across the state system — including in cybersecurity and anti-money laundering — regulators will gain more insight while also freeing up state resources."

An executive for Western Union said the money transmitter supports the CSBS initiative after the company participated in a pilot program.
An executive for Western Union said the money transmitter supports the CSBS initiative after the company participated in a pilot program.

Rosemary Gallagher, associate general counsel for Western Union, said the money transmitter supports the state initiative after the company participated in a pilot program.

“Western Union was a proud participant in the CSBS’s successful one company, one exam pilot," Gallagher said in the group's press release. "We firmly believe that the impact of this new approach to multistate exams will be significant in terms of driving harmonization and streamlining of state supervision across the board.”

Multiple state parties have already challenged the OCC's special-purpose fintech charter. A federal judge last year dealt a blow to the OCC’s special-purpose fintech charter, ruling that the agency lacked legal power to grant a bank charter to a nonbank entity that wasn't eligible for federal deposit insurance in a victory for the New York State Department of Financial Services and CSBS. But the case is still pending an appeal.

More recently, acting Comptroller of the Currency Brian Brooks has expressed interest in the agency providing a specialized charter for payments firms, but his statements have drawn rebukes from state regulators. States have also sued both the OCC and Federal Deposit Insurance Corp. over rules enabling loan buyers to avoid state interest rate caps.

State regulators have charged that they have the expertise and clearest authority to monitor nonbank financial providers for compliance with consumer protection laws, but the OCC says it is in the best position to provide fintechs and others a streamlined regulatory experience.

“I congratulate CSBS and the states on recognizing what we have been saying for years: that for national financial service businesses, it makes little sense to have a patchwork of regulation and supervision," Brooks said in a statement responding to the CSBS plan. "While the efforts alleviate some of the inherent challenges facing a system based on 50 state laws and licensing regimes, only federal law and the uniform regulatory framework it provides fully addresses these issues.”

MSB Networked Supervision grew out of discussions held by the CSBS Fintech Industry Advisory Panel. The state regulator group has sought to develop multistate licensing and supervision options for nonbanks through its CSBS Vision 2020 initiative.

“One company, one exam is a significant and important shift in how state regulators will ensure compliance with consumer protection and safety and soundness standards for the largest payments companies,” said Kevin Hagler, CSBS board chair and commissioner of the Georgia Department of Banking and Finance.

Rick St. Onge, Washington State Department of Financial Institutions examinations chief, said "the next stage will be equally important as we raise the bar for multistate exam coordination."

"For over a century, state regulators have responded to evolutions within the money transmission industry, and networked supervision is the logical next step to more effectively and more efficiently supervise the growing number of nationally operating companies,” he said.

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Payments Fintech regulations CSBS OCC Brian Brooks Licenses and charters Exams