Seeking to modernize the state regulation of nonbanks—and perhaps in response to the Office of the Comptroller of the Currency’s decision to grant fintech charters—the Conference of State Bank Supervisors announced its plans for Vision 2020.

What happened

Vision’s 2020’s series of initiatives “to modernize state regulation of non-banks, including financial technology firms,” hopes to yield a more efficient regulatory system that will better support startups and enable national scale, while protecting consumers and the financial system, the group explained.

Describing its efforts, the CSBS approved a policy statement: “CSBS, the states and territories will create consistent and data-driven solutions that support innovation by minimizing friction in the state regulatory system. By 2020, state regulators will adopt an integrated, 50-state licensing and supervisory system, leveraging technology and smart regulatory policy to transform the interaction between industry, regulators and consumers.”

The initial set of actions set forth by the CSBS and state regulators includes an update of the Nationwide Multistate Licensing System. This technological effort will redesign and expand NMLS, using data and analytics to provide a more automated licensing process for new applicants. It will also allow for more streamlined multistate regulation and shift state resources to higher risk cases, the CSBS said, as well as ensure transparency through NMLS Consumer Access.

Vision 2020 also involves the creation of working groups to establish model approaches to key aspects of nonbank supervision. The state regulators hope to harmonize multistate supervision by having the groups enhance uniformity in examinations, facilitate best practices, and capture and report nonbank violations at the national level. As part of the process, CSBS plans to create a common technology platform for state examinations.

To address the fintech industry, an advisory panel will be formed to identify “points of friction” in licensing and multistate regulation with an eye toward providing feedback to state efforts to modernize regulatory regimes. CSBS said the panel will focus on lending and money transmission, with a wide range of solutions on the table for discussion.

Education programs to help states become more effective in supervising both banks and nonbanks will be provided by CSBS as part of Vision 2020, with updated standards and analytics to help states determine where new expertise is most needed, identify and address weaknesses, update supervisory processes, and compare themselves with and learn from other state departments. “These higher standards will be validated through an enhanced CSBS accreditation program,” the group said.

Also on the agenda: making it easier for banks to provide services to nonbanks and supervision more efficient for third parties. CSBS intends to step up its efforts to address derisking “by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.” In addition, the group supports federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.

“Together, these and other initiatives will help advance the vision for a more streamlined state regulatory system that supports business innovation, local and national economic growth, and essential protections for consumers and taxpayers,” the CSBS said.

To read the CSBS announcement, click here.

Why it matters

Further efforts by the CSBS to streamline the state licensing and regulatory process are ultimately designed to make state regulation just as attractive, if not more attractive, than OCC regulation for financial technology firms. This follows on the CSBS’ own challenge in D.C. federal court accusing the OCC of going “far beyond” the authority granted to it by Congress. “We are committed to a multi-state experience that is as seamless as possible,” CSBS Chairman and Texas Commissioner of Banking Charles G. Cooper said in a statement. “Through Vision 2020, state regulators will transform the licensing process, harmonize supervision, engage fintech companies, assist state banking departments, make it easier for banks to provide services to non-banks, and make supervision more efficient for third parties.”