The Office of the Comptroller of the Currency has released a White Paper that discusses the agency’s attitudes and approaches to developments in financial technology, and to the associated innovations that the fintech industry has brought, and continues to bring, at an ever-increasing pace, to banks and others in the financial-services industry.
Fintech innovations come both from within the financial-services industry and from nonbank companies, which may want to offer their products or services as vendors to financial institutions, or, instead, partner with such institutions in offering new services to bank customers.
The White Paper enumerates eight “guiding principles” that the agency says it has formulated “to guide the development of its framework for understanding and evaluating innovative products, services, and processes that OCC-regulated banks may offer or perform.” The term “responsible innovation” occurs throughout the principles, and, indeed, throughout the White Paper.
The principles reflect the OCC’s longstanding emphasis on the importance of such matters as assuring fair access to financial services and fair treatment of customers; giving due attention to effective risk management and preserving safe and sound operations; encouraging all banks to integrate responsible innovation into their strategic planning; promoting effective outreach; and collaborating with other regulators.
Speaking at the American Banker Retail Banking Conference in Las Vegas on April 7, Comptroller of the Currency Thomas J. Curry discussed the White Paper, the agency’s development of it, and some of what the agency hopes it will achieve: “We at the Office of the Comptroller of the Currency want to support efforts by federal banks to innovate, but we also want to be sure that they do so in a responsible way that doesn’t threaten the safety of the system or the financial well-being of bank customers.” He added: “Banks engaged in responsible innovation need to strike the right balance between providing benefits to consumers and businesses with sound risk management.”
The agency says it is considering several alternative structures and methods for understanding and evaluating the new products, services, and techniques, and the related innovations available through use of fintech devices and applications, and how the regulatory and supervisory framework administered by the OCC, and the business plans of the institutions that it supervises, most effectively and efficiently can assure that the benefits of these innovations can be made available to customers, while preserving safety and soundness, and without limiting or restricting the public’s access to financial services, or putting at undue risk the protection of privacy and data security that both commercial and consumer customers of banks now demand.
“Banks of all sizes will need to ensure appropriate risk management plans are in place when considering new products, services and technologies, using models and managing third-party relationships,” Curry said in his Las Vegas speech. “The OCC’s framework will describe ways that national banks and federal savings associations identify and address risks resulting from emerging technology.”
One proposal under consideration is the creation by the OCC of a centralized office on innovation. Presently, according to the paper, “banks and nonbanks use a variety of formal and informal entry points to communicate with the OCC”—one bank that’s interested in an innovative payments process may approach its examiners, for example, while another may seek guidance by inquiring of OCC legal staff whether it would need to obtain a legal opinion before offering or using a new process, and another may “contact one of the agency’s experts on credit, compliance, payments, cybersecurity, or modeling. While providing flexibility, the current process can result in some inconsistencies and inefficiencies.”
The White Paper concludes with a series of nine questions on which the OCC requests public comment, covering such areas as what steps the OCC can take to facilitate responsible innovation by banks and thrifts, what the agency can do to help community bankers better incorporate innovation into their strategic planning processes, and what forms of outreach and information-sharing are most effective.
The paper notes that some fintech innovations have been successful in expanding the access of underserved customers to financial services. Survey data indicate that underserved communities are more likely to use mobile banking technology than “fully banked” communities. Moreover, it adds: “Current innovations in the financial industry hold great promise for increasing financial inclusion of underserved consumers, who represent more than 68 million people and spend more than $78 billion annually.”
At the same time, the paper points out, “Brick-and-mortar branches are a stabilizing force in low-income neighborhoods, and innovative technology should not be seen as a substitute for a physical presence in those communities.” The paper says that the agency may issue guidance “on its expectations related to products and services designed to address the needs of low- to moderate-income individuals and communities,” including “promoting awareness of other activities that could qualify for Community Reinvestment Act consideration.”
