How the OCC can clear a path for financial technology entrepreneurs

The agency’s new acting head has experience with patchwork state licensing.

At last week’s Consensus: Distributed virtual conference Brian Brooks, chief operating officer of the U.S. Office of the Comptroller of the Currency (OCC), said the agency should consider a federal licensing scheme for cryptocurrency firms. That’s great to hear as it’s something Coin Center has been advocating for years. What’s even more heartening is that starting Monday, Brooks, who was formerly chief legal officer at Coinbase, will take over leadership of the OCC as Acting Comptroller.

A federal licensing regime was the subject of our 2018 report, The Need for a Federal Alternative to State Money Transmission Licensing. As Peter wrote at the time:

[An] option would be to have the federally created prudential standards administered by a federal regulator via an alternative federal money transmission license. That is, a business could choose to seek licenses in those states in which it will have customers, or it could alternatively choose to seek a federal license. As a result, the federal licensing program need not preempt the ability of the several states to continue granting licenses. A federal license can simply be an alternative to state licensing and federally licensed businesses can be absolved, under the federal statute, from any liability or obligations under state licensing laws (limited preemption). This is no different than the dual nature of state and federal banking regulation that exists today.

It makes perfect sense that the OCC set out to build such a framework. As we told the OCC in a May 2016 comment on their “Fintech Charter” proposal,

[T]he OCC could craft a risk-mitigating charter that only enables fintech firms to engage in some of the core activities of banks. Given the risks associated with deposit-taking and lending, fintech firms could be limited in their charters to performing the check payment function. Effectively, the firm only gains access to ACH or Fedwire in order to facilitate exchange or interoperability between virtual currencies and the dollar. In this potential model of a limited charter, the fintech firm would have the key benefits of federal regulation, preemption of state law, and access to the payments system, but would not engage in risk-generating activities like deposit taking or credit extension.

This seems to be exactly what Mr. Brooks is talking about when he says the OCC should consider a “non-depository payments charter.” So we look forward to working with the OCC under his leadership on a sensible approach to federally licensing crypto firms.