At the end of October, the Office of the Comptroller of the Currency (“OCC”) released its Recommendations and Decisions for Implementing a Responsible Innovation Framework (the “Recommendations”). The Recommendations are the latest step in a long process the OCC has undertaken to try to revamp its approach to new financial technologies (“fintech”): in March of 2016 the OCC issued a white paper setting out the principles it believes should guide responsible innovation in financial services, and in July it held a day-long forum to discuss the white paper with stakeholders. The recently-released Recommendations are largely consistent with the themes and principles developed earlier this year, and they call for several concrete changes to help the OCC engage with banks and fintech companies more effectively:
- Creation of an Office of Innovation. This new office will be a stand-alone office reporting directly to the Comptroller’s Office and will serve as a point of contact between the OCC and the financial services industry on issues relating to technological innovation. It will consist of a Chief Innovation Officer, Innovation Officers, an Innovation Technician, and several Innovation Fellows (who will research innovation trends and analyze the effects of new technologies on stakeholders).
- Establishment of an Outreach and Technical Assistance Program. The Recommendations note that, because fintech innovations are novel and constantly evolving, the OCC must provide support and guidance to both banks and fintech companies, especially concerning the application of consumer protection laws to new products, to non-bank fintech companies, and to partnerships between banks and non-bank fintech companies. To address this need for more guidance, the OCC plans to create a formal innovation outreach strategy to communicate with the industry, which will include holding “office hours” for regulated institutions, hosting innovation workshops on specific topics, and adding innovation elements to existing outreach events like banker roundtables. The Recommendations also suggest that the OCC develop technical assistance materials to help fintech companies, which may be new to financial regulation, understand the regulations in place.
- Improved Awareness and Training for OCC Staff. Recognizing that greater technological expertise and awareness of trends within the financial services industry will help OCC staff interact with the industry more effectively, the Recommendations call for the creation of an internal webpage with training materials and information about industry trends and innovative products, services, and processes. The Recommendations also suggest recruiting individuals with expertise in engineering, advanced information technology, systems development, cybersecurity, statistics, and mathematical modeling to broaden the OCC’s ability to engage in the technological innovations being developed.
- Better Communication with the Industry. The Recommendations acknowledge feedback from commenters that “regulatory uncertainty, lack of transparency, and inconsistency deter innovation” and that “the absence of a streamlined review process, with a fixed response time, acts as a disincentive for institutions to expend requisite time and resources” to consult with regulators during the development of new products. To address this, the Recommendations provide for the establishment of communication standards with set timelines for responding to inquiries and requests for technical assistance, the use of a standard workflow to manage inquiries and requests, and the implementation of an inquiry- and request-tracking process.
- Development of Optional Program for OCC Participation in Bank-Run Pilots. The Recommendations observe that there is growing industry demand for a “safe place” for testing of new products or processes, without the risk of legal consequences if flaws are discovered, to ensure that the innovations work and generally comply with OCC expectations before full-scale development and rollout. The Recommendations try to address this need by proposing an optional pilot program for bank-run pilots that meet certain objectives. It is unclear what exactly this program will entail. Moreover, it may not ultimately satisfy the industry because the OCC has made it clear that any such program will not provide a safe harbor protecting companies from liability if the pilot runs afoul of consumer protection laws. Accordingly, the significance of this recommendation remains to be seen.
- Increased Research and Interagency Collaboration. Finally, the Recommendations state that the OCC should devote additional resources to technological and industry research to stay abreast of all relevant innovations and technologies. Further, the OCC should coordinate with other agencies, particularly ones with which the OCC shares jurisdiction, to ensure consistent approaches to innovation and to take advantage of information-sharing opportunities.
The plans set out in the Recommendations certainly have the potential to create stronger and more effective relationships between the OCC and the financial services industry, and to better facilitate innovation. Whether the plans will actually be implemented in a way that accomplishes the Recommendations’ stated goals is, of course, an open question. For example, as part of the plans to provide technical assistance to fintech companies, the Recommendations suggest that office hours (which are listening sessions between the OCC and a single party) “could be used to provide banks and fintechs with meaningful information about how to effectively and responsibly engage in innovation.” This idea is promising in theory, but given that most regulators are reluctant to give concrete advice on specific questions, the real utility of such office hours is questionable.
Nevertheless, the Recommendations are a positive sign that the OCC plans to be more proactively involved in fostering innovation. And there is reason to think that at least some of these Recommendations will actually be implemented: beginning with the white paper in March and continuing with the forum in July and now the Recommendations, the OCC has been steadily following through on its stated goals and timelines for the development of its revamped approach to innovation. The Recommendations were approved by Comptroller of the Currency Thomas Curry in October, and Mr. Curry has stated that he expects the Office of Innovation to be up and running by the first quarter of 2017. Hopefully, the creation of this office and the implementation of the Recommendations will indeed facilitate the development of new and innovative technologies, and will lead to greater cooperation between the industry and its regulators.