In the evolving landscape of U.S. banking, the path for FinTech companies aiming to secure national bank charters continues to be complex and strenuous. While these companies hope that a national bank charter would open doors to the vast U.S. financial market, challenges persist in meeting regulatory requirements. Recent decisions by the Office of the Comptroller of the Currency (OCC) highlight that merely bringing successful overseas models or technological innovations does not suffice. A deep understanding of U.S. banking regulations is imperative.
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Wise and Bunq, two European FinTech firms, recently faced setbacks with their respective applications for U.S. national bank charters. The OCC cited multiple deficiencies, ranging from compliance with anti-money laundering (AML) laws and capital adequacy to management’s experience and profitability models. Notably, historically, while companies like Upstart have secured conditional approval for their bank charters, they’ve been required to meet stringent criteria, stressing the need for robust operational and compliance frameworks.
Why Did Wise Falter?
Wise’s attempt fell short primarily due to unresolved compliance issues in its existing U.S. operations. Reluctant to offer a charter, the OCC pointed to the company’s reliance on enterprise-level AML procedures that were previously flagged as insufficient. The OCC required assurance that these shortfalls would not carry over to the new trust bank.
The company said, “We are committed to addressing concerns and will reapply under a new framework.”
Despite this setback, Wise pledges to resubmit its charter application, incorporating measures to rectify these shortcomings in alignment with the GENIUS Act.
How Did Bunq’s Assumptions Miss the Mark?
When evaluating Bunq’s application, the OCC focused on the discord between European banking models and those required in the U.S. capital markets. The submitted plans underestimated credit losses and lacked the rigorous analysis expected in the competitive U.S. context, questioning the bank’s ability to operate sustainably.
Bunq acknowledged, “Understanding U.S. banking norms is crucial, and we’ll revise our proposal.”
Management’s familiarity with U.S. banking laws was found wanting, prompting Bunq to reconsider its strategy for entering the American market.
In contrast, Upstart’s approach underlines the complexities involved. Their granted conditional approval came with several prerequisites, including high expectations for leverage ratios and comprehensive plans for compliance, risk management, and cybersecurity. This juxtaposition serves as a clear indicator of where other FinTechs might direct their efforts to enhance their applications.
Upcoming applicants like Revolut Bank US and Payoneer’s proposed PAYO Digital Bank face these precedents as benchmarks. Their acceptance into the U.S. market hinges on demonstrating robust operational frameworks that adhere strictly to U.S. regulations.
The OCC’s guidance indicates the road still open for FinTechs, conditional on rigorous preparations. To succeed, companies must substantiate their U.S.-specific banking expertise and rectify any existing compliance issues. This rigor reflects the OCC’s commitment to maintaining stability and integrity in the banking landscape.
Emergent FinTech applicants must not only address current regulatory challenges but also anticipate how their business models align with both existing and evolving U.S. banking norms. Thorough groundwork and demonstrable management capability could offer a better pathway for gaining a sought-after national bank charter.
