The US Office of the Comptroller of the Currency (OCC), which charters and supervises national banks and federal savings associations (“banks”), recently issued a whitepaper setting forth its guiding principles on how it will support responsible innovation by its banks with respect to new financial technology products, services and processes (collectively, “fintech”). With this whitepaper, the OCC makes it clear that it understands the potential that fintech has for banks to make their operations more efficient and to better serve customers, and wants to support its banks in their fintech endeavors.
The OCC also solicited comments on the whitepaper, which are due by May 31, 2016. The OCC plans to further discuss financial services innovation, as well as the comments received on the whitepaper, in a forum to be held June 23, 2016, at the Washington, DC Constitution Center.
How it began
The whitepaper was developed as a result of an OCC initiative that began in 2015 to improve its ability to better identify, understand and evaluate fintech being developed and used by its banks. The whitepaper notes the emergence of innovations such as mobile wallets, distributed ledgers and marketplace lending that are taking place within regulated banks, and non-bank fintech companies in which banks are investing.
The OCC sees its support of a banking industry that innovates responsibly as central to its primary mission to ensure that “banks operate in a safe and sound manner, provide fair access to financial services, treating customers fairly and comply with applicable laws and regulations.” The OCC defines reasonable innovation as:
The use of new or improved financial products, services, and processes to meet the evolving needs of consumers, businesses, and communities in a manner that is consistent with sound risk management and is aligned with the bank’s overall business strategy.
OCC’s guiding principles
The whitepaper sets out eight principles the OCC has developed to guide it in evaluating fintech being offered by its banks:
Support responsible innovation: improving OCC internal evaluation and decisionmaking with respect to its banks’ fintech innovations, and determining whether it needs to revise its current regulatory guidance in order be more clear on its expectations for its banks in this area
Foster an internal culture receptive to responsible innovation: increasing OCC staff training to further develop their fintech expertise, understanding and receptiveness to responsible innovation
Leverage agency experience and expertise: evaluating how to better utilize its examiners who act as the OCC’s point of contact with its banks, in their advising banks when discussing potential new fintech, and in identifying possible supervisory issues for further discussion
Encourage responsible innovation that provides fair access to financial services and fair treatment of consumers: publicizing the successes of its banks that use fintech to provide greater access to banking services by currently unbanked or underbanked customers, and issuing regulatory guidance on how its banks can use fintech to further the inclusion of consumers into the banking system
Further safe and sound operations through effective risk management: continuing to improve its understanding of risk management issues that may come with using fintech, and issuing new or updated regulatory guidance on how to better manage such risks
Encourage banks of all sizes to integrate responsible innovation into their strategic planning: emphasizing the need for its banks not to embrace the latest fintech to come along for the sole reason that it is new, but to instead carefully evaluate how it will fit within, and be consistent with, a bank’s overall strategic plan
Promote ongoing dialogue through formal outreach: furthering ongoing dialogue with its banks, and others such as consumer groups and nonbank fintech companies, in order to stay current on fintech developments, and to provide resources, information and guidance on fintech on its public website and through bank-accessible portals
Collaborate with other regulators: increasing its already robust collaboration with other US regulators on financial supervision to include regular communication on fintech activities and innovation
Some questions to consider
Finally, the OCC raises several issues for potential commenters to consider, including challenges fintech poses to smaller community banks, how the OCC can better monitor fintech developments in the banking sector and what additional regulatory guidance on fintech is needed for its banks to meet OCC expectations.