OCC Wants 'Safe Space' for Fintech-Bank Innovation

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The Office of the Comptroller of the Currency is seeking to create a regulatory sandbox that it hopes will allow fintechs and banks to experiment on innovations to the financial system.

During a daylong forum on "responsible innovation" hosted by the agency, fintech firms, agency officials and other stakeholders weighed in on the future of banking. Chief among plans discussed was the creation of a "safe place … for the institutions that we regulate and fintech firms to have a conversation about what the rules of the road are," said Thomas Curry, the comptroller of the currency.

But the comptroller stopped short of proposing relaxing regulatory requirements for fintech startups.

"When you get into other areas whether there's a free pass or the ability to operate outside rules and regulations, I think it gets a little murkier," Curry said. "There are some limitations of what we can or can't do."

Fintech firms have lobbied for the OCC to create a limited-purpose charter that would allow firms to follow one set of federal rules instead of various state regulations, but not subject them to the same amount of regulation as full-fledged financial institutions.

During the conference, OCC officials offered more details on that idea. First, officials said the agency will likely treat companies seeking deposit insurance differently from others which might be connected to the financial system through a partner bank.

"If they're looking for deposits as a source for cheap and stable funding, they will need deposit insurance," Curry said. "If their business plan or model does not include the need for funding, then basically that would be solely in the determination of the OCC."

The OCC is also contemplating how it would address the failure of such a company, Curry said.

"There is a statutory framework" for receiverships, he said. "What we need to assess is what would we do, if the innovative fintech type of charter — assuming it was granted — how would we unwind it."

But OCC officials said they would be careful in approving new charters, in part because of lessons learned from the financial crisis.

"The sanctity of the charter was something that in large bank supervision we needed to reflect on after the financial crisis," said Maryann Kennedy, the OCC's deputy comptroller for large-bank supervision.

Recalling cases where banks acted "as booking agents," she added, "we do have to look in the past and see what worked and didn't work."

It appeared one of the OCC's goals in making these overtures to the fintech sector was to keep a closer eye on it.

"What's the impact of the migration out of the regulated banking industry for certain products?" Curry asked. "And if it reaches a certain scale, what [are] the public policy considerations?"

The comptroller stressed that new market players were responsible for following many of the same rules as traditional banks — from anti-money-laundering and terrorism financing measures to Community Reinvestment Act requirements.

"Whenever you're engaged in the transmission of money, there really is a need to address money laundering issues," Curry said. "Our consumer protection laws generally govern creditors."

But, Curry said, fintech companies might have an advantage when it comes to the degree of scrutiny they receive from regulators. "It's not a question of whether or not laws apply," he said. "I would suggest that it's potentially an issue of, is there a direct federal or state overseer of that activity?"

As for blockchain technology "or any other processes that would affect the integrity of a bank's records," Curry said the OCC would seek to study the technology and determine its benefits and "potential pitfalls."

In order to move forward on its plans to more formally address the fintech industry, an OCC team dedicated to innovation issues will soon offer recommendations to the comptroller on the type of structure the agency should implement.

Kay Kowitt, a deputy comptroller who heads the team, said the agency would consider both public comments on the agency's white paper released in March — which has been downloaded 20,000 times, according to a spokesman — and feedback from "internal stakeholders."

But, she said, "The mandate going in is not to be pushing out a bunch of regulation and guidance."

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Consumer banking Fintech Law and regulation