Special Purpose National Banks: The New Frontier of Banking

3 Min Read By: David Ridenour


  • Should your fintech company apply to become a special purpose national bank?
  • Doing so is an extraordinary undertaking, and there are several key points to consider.

Numerous fintech companies (i.e., those entities that (1) have nontraditional or limited business models, (2) do not take deposits, (3) are not insured by the Federal Deposit Insurance Corporation (FDIC), and (4) rely on funding sources different from those relied on by insured banks) are currently debating whether they want to go through the rigmarole of becoming a special purpose national bank (SPNB). Becoming a SPNB is an extraordinary undertaking, and on July 31, 2018, the Office of the Comptroller of the Currency (OCC) released its Supplement to the Comptroller’s Licensing Manual (the Supplement), which describes the key factors the OCC will consider in evaluating charter applications to become a SPNB.

Set forth below is a punch list of key points of which any fintech company should be cognizant prior to launching into the SPNB application process.

The OCC strongly encourages potential applicants to engage with the OCC well in advance of filing a charter application, and such potential applicant should contact the Office of Innovation. In fact, the OCC Licensing Department actually will determine whether an entity should even submit a draft application before filing a formal application.

In determining whether to file a formal application to become a SPNB, perhaps the most important factor for any fintech company to always bear in mind is that as a national bank (i.e., a SPNB), they will be subject to the laws, rules, regulations, and federal supervision that apply to all national banks. As such, the filing procedures for an SPNB will be substantially the same as those of any other national bank, including being made available for public comment.[1] Moreover, companies seeking a charter as an SPNB will be expected to (1) make a commitment to financial inclusion, and (2) develop and adhere to a contingency plan that includes options to sell, wind down, or merge with a nonbank affiliate, if necessary.

If a fintech company files a charter application, the OCC will consider the applicants (1) business model, (2) governance structure, and (3) risk profile.[2] In addition, potential applicants should be prepared to discuss: (1) its proposed activities, (2) the market analysis supporting its business plan, (3) its capital and liquidity needs, (4) its contingency plan for periods of financing stress, and (5) how it will demonstrate a commitment to financial inclusion.

Once an application is filed, the OCC seeks to make a decision on a complete and accurate application within 120 days after receipt. The OCC grants approval of a charter application in two steps: (1) preliminary conditional approval and (2) final approval. The OCC will issue a final approval once it determines all key phases of organizing the bank have been completed, all requirements and conditions for final approval have been met, and the organizers have received any other necessary regulatory approvals. The OCC will also impose assessments on a SPNB as a condition of approval. After final approval, the OCC will supervise the SPNB as it does all other national banks, and like all de novo institutions, newly chartered SPNBs will be subject to rigorous ongoing oversight to ensure that the bank’s management and board of directors are properly executing their business strategy, and the bank is meeting its performance goals.[3]

Although becoming a SPNB is indeed an extraordinary undertaking, for many it may be worth the effort, and there are law firms that can assist every step of the way.

[1] For details on filing an application, see 12 C.F.R. § 5 and the “Charters” booklet of the Comptroller’s Licensing Manual.

[2] For details on the review of applications, see 12 C.F.R. § 5 and the “Charters” booklet of the Comptroller’s Licensing Manual.

[3] Key supervisory considerations for SPNBs are highlighted in Appendix A to the Supplement.

By: David Ridenour

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