On March 31, the Office of the Comptroller of the Currency articulated its “vision” for responsible innovation in the federal banking system in the form of a white paper, continuing the agency’s own multi-year initiative to stay abreast of developments in the financial services industry. The OCC’s stated goal is to build the regulatory framework that would apply to the various entities that inhabit the “evolving landscape” of financial marketplaces. Mention of fintech companies and shifting demographics in the United States counterpoised with the “brick-and-mortar” establishments that impliedly are associated with the national banks and federal thrifts the OCC is charged to supervise might rattle some VCs, speculating about the true designs of a distant regulator. But fully half of the agency’s stated principles for responsible innovation squarely place responsibility on the OCC to improve its legacy systems for regulating, and thereby promote a safe and sound banking system that accommodates innovation.
The OCC’s paper, Supporting Responsible Innovation in the Federal Banking System, available here, surely will be an object of debate, and the agency is welcoming views on the paper. The OCC requests that comments be submitted to [email protected], by May 31, 2016. For starters, the OCC defines “responsible 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.
Many of the eight principles of the OCC’s emerging framework for the regulation of innovative financial products or services are designed to improve the agency’s own mechanisms to grapple with promoting a safe and sound banking system while so many participants are conducting financial transactions that might not, or just barely, touch a bank. Chief among its stated principles are the OCC’s responsibilities to be supportive of innovation and to foster within the agency a culture receptive to innovation. Coupled with a commitment to an “ongoing dialogue through formal outreach” (to Congress, too?), the OCC might be styling itself for real change. Other highlights include an acknowledgement that banks and non-banks alike seek further guidance and clarification from the OCC regarding the agency’s expectations for strategic relationships between banks and technology companies.
The OCC’s emphasis on “outreach” and its “principles” for innovation echo various recent announcements by the Consumer Financial Protection Bureau. The Bureau’s recent issuance of its final “No-Action Letter” policy (available here) describes in exhaustive detail the Bureau’s outreach initiatives to both consumers and financial services providers—likely at least, in part, to defuse criticism about the extremely limited scope of the No-Action Letter policy. Likewise, the Bureau cited its various outreach initiatives to various entities engaged in developing elements of faster payment systems when the agency, last July, issued its “Vision of Consumer Protection in New Faster Payment Systems” (available here), which describes the agency’s ambition for “consumer interests [to] remain top of mind throughout [payment systems] development.” Among other pressing issues, the OCC asks for comments on how the agency can improve its “process for monitoring and assessing innovation within the federal banking system” and ways the agency could “provide guidance to nonbank innovators regarding its expectations for banks’ interactions and partnerships with such companies.”
Potentially brave steps for a federal agency, forged during the Civil War, that’s apparently willing to accept new challenges. PLA readers should consider taking up the invitation and contribute their views. The OCC is also sponsoring a forum on responsible innovation on June 23, 2016, in Washington, D.C., at which it plans to discuss the comments to the white paper and lead a discussion. Details concerning registration will be released in April.