USA Trends and Developments Contributed by: Donald J. Mosher, Kara A. Kuchar, Melissa G.R. Goldstein, Jessica Romano and Adam J. Barazani, Schulte Roth & Zabel LLP
As regulators refine their approach to digital assets, fintechs operating in this space must closely monitor evolving policies and enforce - ment trends. While federal actions suggest a move toward clearer oversight, state-level incon - sistencies and ongoing enforcement uncertain - ties require adaptable compliance strategies. Exploring Different Financial Institution Charters to Meet Fintech Needs The concept of a federal payments charter has gained renewed attention as policymakers grapple with the challenges of regulating fintech companies operating across multiple states. Originally introduced during the first Trump administration, the idea aimed to provide a uni - fied framework for non-bank payment entities, streamlining compliance and reducing the need for multi-state licensing. While the OCC has hint - ed at revisiting the federal payments charter, no official steps have been taken to reopen appli - cations. Proponents argue that such a charter could fill regulatory gaps in payments oversight, but critics, including state regulators, contend that it could encroach on state authority and create inconsistencies in consumer protection standards. At the state level, novel charter structures have emerged as alternatives for fintech companies seeking banking-like privileges without full-ser - vice bank regulation. One example is Connecti - cut’s innovation bank charter, which is touted as “ideal for entities performing financial-related activities such as wholesale banking and mer- chant banking” . An innovation bank can engage in deposit-taking activities, but cannot accept retail deposits from individuals who are not accredited investors, and is not required to obtain FDIC insurance. Notably, Numisma Bank received this charter last year, and became the first Connecticut innovation bank to obtain
a Federal Reserve master account. Another limited-purpose state charter that has gained renewed attention is Georgia’s merchant acquir - er limited purpose bank charter, which was origi - nally created in 2012 to allow entities engaged in merchant acquiring or settlement activities to directly access payment card networks without relying upon a sponsor bank. In addition, Wyo - ming’s Special Purpose Depository Institution charter and Nebraska’s Financial Innovation Act aim to attract digital asset companies by pro - viding structures for integrating blockchain and digital asset custody into financial services. A key consideration for fintech companies exploring limited-purpose bank charters is direct access to the Federal Reserve through a mas - ter account, which allows institutions to settle transactions directly through the central bank rather than relying on intermediary banks. His - torically, access to these master accounts has been limited to traditional depository institutions, but recent developments, particularly Numisma Bank obtaining a master account, suggest a possible opening for novel charters. While the Federal Reserve has issued guidelines for evalu - ating master account applications—emphasis - ing factors such as financial stability and regu - latory oversight—the process remains opaque, and fintechs pursuing alternative charters must weigh the potential benefits of direct Fed access against the uncertainties surrounding regulatory approvals. Bank-Fintech Partnerships Under Scrutiny After Fintech’s Failure In light of the collapse of Synapse Financial Technologies, Inc. (Synapse) last year, federal and state regulators are more closely scrutinis - ing banks’ relationships with fintech companies. Synapse operated as “banking-as-a-service” provider, and was the middleware provider con -
992 CHAMBERS.COM
Powered by FlippingBook