OCC official provides more detail on financial innovation pilot

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WASHINGTON — A senior official at the Office of the Comptroller of the Currency offered additional details Thursday about a pilot program designed to allow banks to test innovative financial products.

Beth Knickerbocker, the OCC’s chief innovation officer, told reporters that she is hopeful the pilot program will be launched by the end of the year. She also clarified the types of participants and innovative products that would qualify for the program, which was proposed Tuesday. The public has until June 14 to comment on the proposal.

“This is a program that we’re comfortable with now but we want to make sure that there’s appropriate industry feedback,” said Knickerbocker, who spoke to reporters at the OCC's headquarters. “We hope that we could get it out as soon as the end of the year, but it’s hard to say.”

Under the proposal, the pilot would be offered only to OCC-regulated banks that need regulatory guidance on offering an innovative product or service to the market. A bank can partner with a fintech firm in the pilot or the bank can join others in offering a consortium-backed idea.

The program is distinctly different from the OCC’s new special-purpose charter that is open to a nonbank fintechs. The new charter is currently being challenged in court by state regulators. Knickerbocker said the lawsuits had no influence on the OCC developing the fintech pilot program as another avenue to encourage innovation.

“The whole idea of a pilot actually came from the very beginning of the whole [OCC innovation] initiative” that the agency started in late 2015, she said. “We feel that pilots are a good opportunity for us to work in a different way with our banks to support responsible innovation.”

The OCC’s proposal purposely casts a wide net on the types of eligible products or services so long as an innovation presents “significant opportunities or benefits” for consumers, businesses and other financial institutions, according to the proposal itself.

Knickerbocker added that it’s possible the program would drive industry interest in areas such as alternative data, using artificial intelligence to improve anti-money-laundering compliance, and how banks and regulators use blockchain technology.

“We’ve heard a lot about the opportunity for regulators to be a node on a distributive ledger and to monitor the transactions in real time,” she said. “So there are opportunities potentially for the regulators to really start to test new mechanisms for our own supervision. And to understand better how the controls would work on a distributive ledger, as opposed to traditional mechanisms for monitoring different transactions.”

Knickerbocker said the pilot program would not offer a safe harbor from regulatory enforcement actions while a bank tests a product or service. This is different from programs encouraging innovation offered by other regulators. The Consumer Financial Protection Bureau, for example, proposed steps for removing legal liability for fintech firms that apply for the special treatment.

“We don’t think that it’s appropriate as a regulator to grant waivers . . . of consumer harm or applicable regulations,” Knickerbocker said. “We believe that banks can effectively innovate within the regulatory construct that is set up right now and if there are questions, if there are barriers, we hope to hear about that. And then we’ll address that.”

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