WASHINGTON — Federal financial regulators, including NCUA, have reached a deadline for reviewing rules and supervisory practices that may impede fintech competition, a process that could ultimately affect fintech partnerships with banks, applications for charters and access to the U.S. payments system, according to an analysis by PYMNTS Intelligence.
President Trump directed six federal financial regulators in a May 19 executive order to spend 90 days identifying regulations, guidance, supervisory practices and application procedures that may unnecessarily hinder fintech competition.
That 90-day review period ended Monday, Aug. 17, although the executive order does not require the agencies to publicly release their findings, PYMNTS Intelligence said.
In addition to NCUA, the review covers the Consumer Financial Protection Bureau, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.
What EO Calls For
The executive order directs the agencies to examine potential obstacles facing fintech companies seeking partnerships with regulated financial institutions. It also covers application processes for bank and credit union charters, federal deposit insurance and other federal licenses and registrations.
Those requirements could affect a fundamental decision facing fintech companies: whether to remain technology providers, operate through sponsor banks or seek charters that would make them regulated financial institutions, PYMNTS Intelligence said.
Working through a sponsor bank can give a fintech access to regulated financial services without the expense and regulatory burden of becoming a bank. But that model also makes the fintech dependent on the bank’s compliance requirements, risk tolerance and regulatory relationships.
Potential Shift
Obtaining a charter can provide greater control but comes with capital, regulatory and operating requirements.
Even relatively modest changes in federal procedures could shift that calculation, according to the analysis.
PYMNTS Intelligence said the OCC and FDIC could play particularly important roles. The OCC oversees applications for national bank charters, while the FDIC determines whether qualifying institutions receive federal deposit insurance.
Faster decisions, clearer application standards or more predictable regulatory expectations could reduce uncertainty for fintech companies considering charters. Changes in third-party risk supervision could also affect how banks assess relationships with fintech companies.
Just Stage One
The Aug. 17 deadline, however, represents only the first stage of the process.
Under Trump’s order, the agencies have 180 days from May 19 to take appropriate actions based on their findings. That deadline falls Nov. 15.
The CFTC has already provided some indication of how its review is proceeding. In June, the agency issued a request for information seeking examples of regulations, orders and staff guidance that could impede fintech partnerships or complicate registration processes.
The commission said the responses could be used in developing amended guidance, policy statements or regulations.
Another Deadline Approaching
A separate deadline involving the Federal Reserve is approaching.
Trump’s executive order directed the Fed to report to the White House by Sept. 16 on whether uninsured depository institutions and nonbank fintech companies could be given greater direct access to Federal Reserve payment accounts and services.
The Fed was directed to consider its legal authority, potential risk controls and any barriers that would require congressional action.
Where existing law allows direct access, the executive order also calls for the Fed to establish transparent application procedures and make decisions on complete applications within 90 days.
Could Reduce Fintechs’ Dependence
Direct access to Fed payment services could reduce some fintech companies’ reliance on banks for clearing and settlement. It would also raise questions about which nonbank companies could safely gain access to financial infrastructure historically available primarily to regulated depository institutions, PYMNTS Intelligence said.
While the immediate deadlines are procedural, the analysis said the eventual regulatory changes could have significant implications for fintech business models and bank-fintech relationships.
The next major indication of the administration’s direction could come as regulators determine which of the barriers identified during their reviews should be modified or eliminated, PYMNTS Intelligence stated in its analysis.
