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Supporting Responsible Innovation in the US Financial Sector An OCC Perspective
(Left to right) Thomas J. Curry and Mark Wetjen

Calling banking a “technology business,” Thomas J. Curry, U.S. Comptroller of the Currency detailed his agency’s efforts to advance what he called “responsible innovation” in the U.S. banking sector during The Depository Trust & Clearing Corporation (DTCC) Fintech Symposium 2017 in New York.

Curry spoke at the March 1 Symposium, which drew an audience of some 300, in a luncheon conversation with DTCC Managing Director and Head of Global Public Policy Mark Wetjen, who praised the Office of the Comptroller of the Currency (OCC) under Curry’s leadership for its “forward-leaning” stance on innovation.

Their conversation covered the OCC’s recent moves in the fintech sphere—to create an Office of Innovation and offer special-purpose charters to non-banks—as well as the pro-consumer rationale for the agency’s fintech posture.

The OCC is an independent bureau within the Treasury Department that charters and regulates national banks and thrift institutions. Under the Bank Service Company Act, the OCC also regulates these institutions’ third-party service providers when they perform outsourced functions otherwise performed by the banks. Curry, an Obama appointee, serves a five-year term that ends this year.

Office of Innovation

The OCC broke new ground in the U.S. financial services regulatory community with the establishment late last year of its Office of Innovation. In creating it, Curry told Wetjen, the agency was confronting “a cultural issue”—its in-bred resistance to approving non-traditional bank charters or banks’ requests to use cutting-edge technology.

“We looked at how we approached these issues, how we could be more open, when we saw the tide was changing,” Curry said. The new office, based at OCC’s headquarters in Washington, D.C. with satellite operations in San Francisco and New York, is meant to serve as a clearinghouse fostering “the ability of our regulated banking industry to adopt new technologies,” Curry added. He said the Office of Innovation will: 1) provide a non-supervisory setting in which banks, both those under OCC supervision and community banks that may have even greater technology challenges, can understand the regulatory implications of adopting new technologies, and 2) give fintech firms a clearinghouse where their questions about regulatory expectations for new products or partnerships with banks can be answered.

Special-Purpose Charters

In another noteworthy move, the OCC in December announced its intention to offer special-purpose national bank charters to fintech firms. Curry told Wetjen the action was motivated by a desire to provide a transparent process, with standards and expectations disclosed in advance, rather than pursuing a case-by-case chartering approach.

The OCC is not seeking to regulate any firm engaged in fintech, Curry clarified, and he acknowledged that “some firms may not think it’s worth it to be chartered by the OCC.” Rather, the agency wants to give fintech providers the option to operate under a banking license on a nationwide or global basis with a uniform regulatory structure.

As Wetjen noted, the plan has drawn criticism from state banking regulators and members of Congress on consumer-protection grounds. Others have questioned OCC authority to charter a banking entity that is not FDIC insured, but Curry countered that ample precedent exists for non-traditional bank charters.

He said the special-purpose charter will entail the “whole panoply of supervision” the OCC imposes on other national banks and require some type of commitment to “financial inclusion”—that is, extending access to the under-banked.

Playing in the Regulatory Sandbox

The OCC’s interest in fintech and responsible innovation is driven by their potential to extend banking and other financial services to the underserved, Curry said. But the agency’s support of technology innovation will not come at the expense of protecting consumers.

Asked by Wetjen to clarify the OCC’s position on providing a “regulatory sandbox” for new technology, Curry sought to recast its meaning. The term is used to describe a “safe harbor” approach that relaxes normal regulatory standards to encourage innovation and has been adopted by regulatory bodies in several jurisdictions—including the U.K., Hong Kong and Singapore.

“When you talk about a regulatory sandbox, we are not talking about giving you a carte blanche, get-out-of-jail-free card in terms of consumer products that may result in harm to individual consumers,” he said.

What the Office of Innovation will do, however, he said, is work with firms to vet product and technology ideas “in a controlled setting” with the aim of “limit[ing] the potential liability up front” so that any potential harm to consumers can be addressed before a product goes to market.

In the Cloud

Regarding specific technologies, the OCC is “agnostic,” Curry asserted. “We do not want to be prescriptive.” What about cloud technology? Wetjen asked.

Curry said banking regulators’ guidance, issued in 2012 by the Federal Financial Institutions Examination Council (FFIEC), focused on managing third-party cloud vendors and conducting business continuity planning.

Similarly, the FFIEC developed an assessment tool for cyber security, to help management and boards evaluate their potential vulnerabilities. Work on the cyber security front will continue: in November the OCC, along with the Federal Reserve Board and FDIC, issued an advance notice of proposed rulemaking (ANPR) on enhanced cyber risk management standards.