The OCC’s Journey Towards Innovation
Beginning in 2015, as chief counsel and member of the Executive Committee of the Office of the Comptroller of the Currency (OCC), I led a team that developed the agency’s initiative to support responsible innovation in the federal banking system. Much of what seems obvious now was not so at the time. No other prudential regulator had studied or embraced fintech or endeavored to understand the implications of the rapid developments in technology for banks and their customers, consumers, and small businesses. To get up to speed, agency staff got a crash course in new technologies and quickly learned the sometimes whimsical and often times commonplace names of businesses that sounded nothing like the banks they oversaw.
The OCC’s journey to support responsible innovation led to the establishment of the Office of Innovation, the appointment of a Chief Innovation Officer, and the creation of the Special Purpose National Bank charter for fintechs. Along with these developments came a new receptivity and openness to meet with companies beyond national banks and federal thrifts. Agency staff now routinely meet with fintechs in DC and in other cities. Meetings can range from educational to exploring and discussing the specifics of a bank charter.
As part of its efforts to support responsible innovation, the OCC recently announced the creation of a pilot program for new and innovative products and services. The OCC has considered the idea of a pilot program since it first announced the creation of the Office of Innovation in October 2016, so this development has been a long time in the making. The program does not offer safe harbor protections from regulatory requirements (which would exceed the agency’s authority) but instead provides an opportunity for banks and their third-party partners to seek regulatory input in the pre-launch stage of a product or service.
The newly proposed pilot program should be welcome news for banks and their partners; understanding regulatory concerns and expectations early on can increase efficiencies and save costs in the long run. Although, under the proposed parameters, fintechs alone cannot participate in the pilot. They can join forces with their bank partners to qualify for the program. Requirements for participation include demonstrating that the OCC’s involvement in the pilot is appropriate because (1) the proposed activity is within the scope of the OCC’s supervisory jurisdiction, and (2) uncertainty in the regulatory, supervisory or legal regime is a barrier to the activity’s development or implementation. The agency will also consider whether the activity has the potential to achieve specific objectives, such as meeting the evolving needs of consumers, businesses and communities; promoting financial inclusion; or enhancing the efficiency or effectiveness of bank processes. The proposed program was issued for comment on April 30th with a 45-day public comment period. Although the final pilot program may differ from the proposed one, it is not too early for banks and fintechs to consider how to structure an Expression of Interest that passes regulatory muster, as companies will inevitably queue up for consideration.