Pub. 9 2018 Issue 3

Fall 2018 17 West Virginia Banker it does not provide specific require- ments with respect to capital adequacy, financial inclusion and contingency planning, and applicants will need to develop proposals responsive to these regulatory concerns. With respect to capital, the OCC states that a SPNB will be subject to the min- imum leverage and risk-based capital requirements that apply to all national banks. The OCC has also indicated that these requirements may not be suffi- cient for measuring capital adequacy for some SPNBs. When applying, SPNBs will be required to propose a mini- mum level of capital through a capital adequacy assessment that considers quantitative and qualitative factors and the risks associated with the SPNB’s business plan. If the OCC grants pre- liminary approval for a SPNB charter, the approval will include a condition speci- fying a minimum capital level the bank must maintain or exceed at all times. The Supplement provides that an applicant must demonstrate a commit- ment to financial inclusion that consists of providing or supporting fair access to financial services and fair treatment of customers. The OCC has detailed its expectations regarding financial inclusion in appendix B to the Sup- plement, but notes that the nature of the commitment will depend on the company’s business model and the types of products, services or activ- ities that it intends to provide. The March 2017 draft of the OCC guide- lines included more detail on how the OCC would review a fintech company’s financial inclusion efforts. This lack of specificity has raised concerns among consumer groups, including those who have been pushing the OCC to adopt standards similar to the Community Reinvestment Act. The OCC has noted that the Supplement is a guidance for applicants and should not be viewed as reducing its expectations with respect to the financial inclusion commitment. Fintech anticipates that once an appli- cant receives preliminary approval, it will be required to detail the policies and procedures it plans for use to meet the financial inclusion commitment. With respect to contingency planning, the Supplement requires that the plan address significant financial stress that could threaten the viability of the SPNB. The Supplement provides that the format and content of the contingency plan are flexible and should be tailored to the SPNB’s specific business and reviewed and updated as the SPNB’s business evolves. The SPNB will be ex- pected to review the contingency plan annually and update it as needed. Benefits of a SPNB Charter The overall interest in and benefits of a SPNB charter remains unclear. One advantage of a SPNB charter is that the charter permits a fintech compa- ny to operate across state lines on a national scale as a federally chartered bank and would be useful in providing a more uniform regulatory framework, as opposed to the state licensing and rate cap regulation that currently apply to many fintech companies. West Virginia community banks may seek their own fintech charter through an affiliate or a subsidiary in order to pur- sue certain business lines or to expand their national presence. However, the capital adequacy requirements, liquidity requirements, financial inclusion com- mitments and contingency plans, as well as heightened supervision by the OCC and periodic assessments by the OCC, may cause applicants to not apply for a SPNB charter. Industry commenta- tors have observed that many fintech companies are less interested in the charter after discussing the process with the OCC and learning what is involved. There are also questions about whether the Federal Reserve will grant a SPNB chartered fintech company access to the payments system. Only after fintech companies apply for the SPNB charter, move through the application process, and operate under the SPNB charter, will we gain more insight on whether state regulators will challenge the OCC’s authority to issue the SPNB charter to fintech, the capital adequacy, financial inclusion, and other requirements for obtaining approval of the charter and the benefits of operat- ing as a SPNB.  Amy Tawney and Elizabeth Frame are attorneys in the Charleston, West Virginia office of Bowles Rice LLP. Should you require more information, please feel free to contact the authors directly. Ms. Tawney focuses her practice on banking law, mergers and acquisitions, securities law and regulatory matters. She can be reached at 304-347-1123 or by e-mail at atawney@bowlesrice.com. Ms. Frame’s practice encompasses a wide area of commercial and business law. She also is a member of the firm’s Government Relations Team. She can be reached at (304) 347-1715 or by e-mail at eframe@bowlesrice.com. In the Policy Statement, the OCC indicates that it has authority under the National Bank Act to grant a SPNB charter to a fintech company that engages in one or more of the core banking activities of paying checks or lending money, but would not take deposits and would not be insured by the FDIC.