US States move to standardise licensing for FinTech payments
Seven US States, including Massachusetts with its large financial services community, have agreed to standardise parts of the licensing procedure for money service businesses (MSBs) to try to make it easier for financial technology (FinTech) start-ups to operate across the US.
Acting under the auspices of the national Conference of State Bank Supervisors (CSBS), Georgia, Illinois, Kansas, Tennessee, Texas and Washington are the other US States involved in the compact, with more expected to join later in the year.
The agreement means if one State reviews key elements of licensing for a money transmitter – covering cybersecurity, IT resiliency, the business plan, background checks, and financial crime compliance with the federal Bank Secrecy Act – then other participating States do not have to. The business will have a ‘passport’ to operate in those other States. This is expected to significantly streamline the MSB licensing process, cut costs and encourage good local players to go national.
A Fintech Industry Advisory panel has also been set up, and a new technology platform for licensing and supervising non-banks is envisaged in CSBS’ over-arching ‘Vision 2020’ plan, which according to CNBC, aims to have local regulators take the lead in streamlining and integrating FinTech licensing and oversight, as opposed to national Federal bodies.
The move is part of an on-going turf war between the state regulators, gathered under CSBS’ umbrella, and the US Office of the Comptroller of the Currency (OCC), which has seen its rival plan for a Special Purpose National Bank (SPNB) FinTech Charter repeatedly challenged in the courts and side-lined.
The New York banking regulator filed a suit against the federal OCC last year and a complaint has been made in Washington DC that the OCC is over-reaching its authority in granting Charter status to non-banks. The ex-OCC head and champion of the national FinTech Charter approach, Thomas Curry, was replaced last year, further stymieing the chances of a Federal approach taking hold.
Commenting on the MSB move in a statement, John Ryan, CEO, CSBS, said: “This licensing agreement will minimise the burden of regulatory licensing, use State resources more efficiently, and allow for broad participation by other States across the country.”
FinTech firms are expected to provide US banks with useful front-end tools and apps for new infrastructure backbones coming into place, such as The Clearing House’s (TCH) new real-time payment (RTP) platform, and as the US moves towards application program interface (API) banking, mirroring global trends. This is where new service modules can be plugged into a bank’s core offerings or added as an overlay services on common shared infrastructures. Development can be in-house or with outside assistance, although some FinTechs might try to compete – if they have the scale, customer base and deep enough pockets to battle the banks.
How this evolving FinTech landscape, which is sometimes cooperative and sometimes competitive, is regulated is a cause for debate in the US at the moment, as illustrated by the OCC and CSBS battle. In Europe the second EU Payment Services Directive (PSD2) covers similar ground, but with more elements involved around customer data control. It remains to be seen how well that law, introduced in January, will work and other measures such as the UK Open Banking drive.
What is not in doubt is that as technology, security and compliance increasingly take a central role in financial services who regulates it, and how, is a central component in how the API-led payment, data and banking landscape will develop.