The OCC Wants to Provide Fintech Answers — And That's a Big Deal

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WASHINGTON — The Office of the Comptroller of the Currency is expanding efforts to encourage the development of new banking products, announcing Wednesday that it will establish an office of innovation to spearhead research and communication related to fintech.

The office is an ambitious attempt to solve what fintech and other entrepreneurs say is a big obstacle to new products—that they are unsure how their work fits into the current compliance scheme, and can't get quick and clear answers from regulators when issues arise.

To help address that issue, the agency plans to have its new office establish a research department dedicated to understanding how fintech products affect banks and their customers and how those initiatives track with efforts to bring more people into the financial mainstream. As part of the plan, the OCC also wants to be more accessible to outside firms, creating three local offices in New York, Washington D.C. and San Francisco while establishing "office hours" in places like Austin, Boulder and Raleigh-Durham to field questions.

"While banks and thrifts have always been centers of innovation, now more than ever they must integrate innovation into their long term business strategies," said Comptroller Thomas Curry on Wednesday on a conference call to announce the agency's "responsible innovation framework."

"We will create a stand-alone office of innovation. The office will be the central point of contact and clearinghouse for requests related to innovation."

The framework, which lays out a number of new steps the agency will take to become a player in regulating fintech, follows a March white paper that explored how the agency could address fintech issues. It comes as the OCC continues to consider the development of a federal fintech charter that would establish national standards for such firms. A final decision on a charter is expected later this year, the agency said.

The new innovation office is clearly designed to help figure out where many fintech products fit within the banking sphere. For example, the agency committed to updating and clarifying regulatory expectations about such products, including on third-party risk management and whether they must comply with the Community Reinvestment Act.

In addition, the new office will also be on hand to provide technical assistance on third-party relationships, particularly with community banks. An internal networking group will be formed to encourage communication among staff on these issues.

All these resources will be accessible through a single webpage, which will also be an outlet where the agency will ask for feedback on fintech issues, the OCC said.

Communications will be improved internally as well. The OCC's plan includes the creation of a "responsible innovation committee" that will advise the new office of innovation. The committee will help ensure that the office is connected with the proper OCC staff and receives timely response to its requests internally.

In addition, the OCC will also circulate training material on innovation, which will all be accessible through an internal webpage dedicated to all matters fintech.

The new office, which will open its doors in the first quarter of next year, will be helmed by newly-appointed Acting Chief Innovation Officer Beth Knickerbocker and include local innovation officers in New York, San Francisco and D.C.

The plan will also include the appointment of innovation fellows — a number of analysts dedicated to specific topics who could advise agency staff. The fellows could be pooled from academia, advocacy groups and the private sector.

Additionally, the OCC will make efforts to recruit more technologically-apt employees with skillsets that can include preferences for engineering, advanced information technology and mathematical modeling. This will be accompanied by an expansion of the agency's "specialty skills" program to include cloud-based computing, distributed ledger technology and model risk management. The OCC will also provide more training on these matters to its existing employees through short-term rotations.

The new office would have limits. It would not be able to fast-track regulatory approval of products or businesses. Instead of establishing a sandbox, the OCC said it would create a more transparent and consistent communications process with firms inquiring about fintech issues. To support this, the Office of Innovation will create inquiry response standards, establish a formal process and allow firms to track the status of their requests.

But the agency also opened the door for more. It tentatively proposed the establishment of a system that would allow the agency to be involved in piloting a new bank product. This would have to take place at an OCC-supervised institution or a fintech company partnering with one; or potentially a "significant service provider." In addition, the program would have to either encourage "responsible innovation" or support the OCC in its endeavor to research fintech or further its policy objectives.

It is unclear when the pilot will be established, said Kay Kowitt, deputy comptroller for the Western District, who spearheaded the recommendations that formed the framework.

The pilot "might mean working with the institution as they develop their material, ensuring those materials are well developed and they have a full program, that their consumer related products could not result in any consumer harm," said Kowitt. "So that we just have a fuller understanding of what the bank's going to do for the pilot. It's not giving them a free pass."

Moreover, the agency said it would establish a new information-sharing group with U.S. and international regulators. The group, led by the OCC, would meet periodically and work to "promote responsible innovation."

"We view it as an information-sharing and knowledge-building group," said Kowitt. "It's important to have consistency in our guidance."

The OCC also plans to address lingering fintech policy issues through several pre-existing partnerships with other regulators, including the Consumer Financial Protection Bureau, Department of the Treasury working groups and the Basel Committee's Task Force on Financial Technology.

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