Acting Comptroller Seeks to Bring FinTech and Crypto Firms Under Banking Regulatory Framework

On November 16, 2021, the acting Comptroller of the Office of the Comptroller of the Currency, Michael J. Hsu, attended the Federal Reserve Bank of Philadelphia's Fifth Annual FinTech Conference and discussed “Modernizing the Financial Regulatory Perimeter.” The discussion centered around his beliefs on the need to subject FinTech and crypto firms that offer banking services to the banking regulatory framework.

His main questions and concerns are:

• At what point do FinTech and crypto firms' operations begin to function as banks?

• Are the risks associated with the operation of FinTech and crypto firms the same as those associated with banking?

• Would subjecting FinTech and crypto firms to the regulatory scheme established for the banking industry be the correct solution for risk mitigation? Would such a regulatory scheme undermine the entire purpose of the FinTech and crypto industries? Is it worth taking that risk to prevent other risks associated with FinTech and crypto firms?

• How should bank regulators and the bank regulatory perimeter adapt to the establishment of these industries?

Additionally, Hsu expressed great concern over FinTech firms’ ability to “offer banking services to customers—facilitating payments, holding deposits, and offering credit . . .” through “partnerships” and how this ability often prevents customers from being able to distinguish the FinTech firms from financial institutions. As such, Hsu believes that banking regulators need to establish an evaluation process and a set of criteria for what is acceptable in these partnerships.

Although no directives have been established as to how financial institutions should proceed with these partnerships or what activities are acceptable for a FinTech to conduct, both organization types should review their current partnerships and practices and ensure that they are in compliance with all applicable regulatory frameworks and should prepare for more regulations to come.

If you have any questions or concerns about how these recent discussions could impact your organization, please contact Kennedy Sutherland.