Treasury Report Endorses Fintech Bank Charters, Sandboxes

The Treasury Department has issued a full-throated endorsement of the fintech industry’s wishlist, including a nationwide bank charter for fintechs, “regulatory sandboxes” to foster innovation, harmonized state licensing procedures, and national data breach notification laws.

The July 31 report’s recommendations are designed to help the U.S. financial sector keep pace with industry and technology changes, as well as regulations already adopted by foreign jurisdictions to encourage innovation.

“American innovation is a cornerstone of a healthy U.S. economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector,” Treasury Secretary Steven T. Mnuchin said in an accompanying statement.

Treasury plans to work with Congress and regulators to try to bring their recommendations to fruition, two senior Treasury officials told reporters during a July 31 call.

About one third of the report’s recommendations would require congressional approval, while the remainder could be adopted by state and federal regulators, most notably the national bank regulator, the Office of the Comptroller of the Currency.

The Treasury Department is “very supportive” of the OCC moving forward with a national bank charter for online lenders that want to do business nationwide without the need for a bank partner, the Treasury official said. “A forward-looking approach to federal charters could be effective in reducing regulatory fragmentation and growing markets by supporting beneficial business models,” the agency said in the report.

OCC Comptroller Joseph Otting has repeatedly said in recent months that he is examining the issue. State regulators are likely to challenge such a proposal in court if Otting moves forward with the recommendation.

Unified Sandbox Approach

The Treasury officials highlighted the creation of regulatory sandboxes. Such policies allow startups and other companies to experiment on a small scale with new products and services, such as the use of alternative data in loan underwriting or credit scoring, with reduced risk that regulators will bring enforcement action against them.

“Treasury is committed to working with federal and state financial regulators to establish a unified solution that accomplishes these objectives,” the report said.

The Consumer Financial Protection Bureau is exploring a sandbox plan, and other agencies and states like Arizona and Illinois are considering or in the process of establishing similar projects. But many in the financial services sector say they fear that without coordination among federal and state agencies, companies interested in taking part in one agency or state’s sandbox may still be at risk of being targeted by another regulator.

Unified principles for sandbox initiatives will require the highest level of cooperation, one of the Treasury officials said. “An organization can really only proceed if the various regulators are in coordination on that,” the official said.

The 222-page report is the fourth in response to a White House executive order asking Treasury to identify laws and regulations worth overhauling to stimulate economic activity and U.S. competition in global markets.

NYDFS Claps Back

New York’s top financial services regulator declared herself a fierce opponent of Treasury’s sandbox policies.

“Toddlers play in sandboxes. Adults play by the rules,” DFS Superintendent Maria Vullo said in a statement.

“The idea that innovation will flourish only by allowing companies to evade laws that protect consumers, and which also safeguard markets and mitigate risk for the financial services industry, is preposterous,” Vullo said.

(Updates with N.Y. Department of Financial Services reaction in 13th paragraph)

To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editor responsible for this story: Michael Ferullo at