By Sara Merken
New leadership at the Office of the Comptroller of the Currency hasn’t derailed the agency’s plans to help banks experiment with emerging financial technologies without the full burden of regulation.
The OCC hasn’t said much about the program, which would be lighter versions of the fintech “regulatory sandboxes” used by bank supervisors in the U.K. and elsewhere, since former Comptroller Thomas Curry’s November 2016 speech at the Chatham House in London.
The project is moving forward under acting OCC Director Keith Noreika, who was appointed by the Trump administration in May to replace Curry.
OCC Chief Innovation Officer Beth Knickerbocker told Bloomberg BNA that the initiative will be billed as “OCC participation” in bank pilot projects, potentially including partnerships between banks and financial technology companies. There is no projected launch date for the program, Knickerbocker said.
Knickerbocker said the OCC prefers to use the term “bank pilot” instead of “regulatory sandbox,” which has connotations that firms would be able to “play” freely without consequences.
Participation in the program will be voluntary, she said, and banks will not be allowed to waive liability if consumers are harmed as a result of the products being tested. Other requirements for participation have not been set.
The agency has been considering the sandbox approach, which allows businesses to test out new products and models in the market while being overseen by a regulatory agency, since early 2016 when it released a white paper on innovation in banking. The OCC Office of Innovation, headed by Knickerbocker, was created by Curry last October and has staff located in Washington, New York, and San Francisco.
The OCC wants to participate in the early development of fintech products and services to “facilitate OCC and bank learning around issues that may have regulatory implications,” Knickerbocker said.
A sandbox or pilot could be particularly valuable when there is a controversial or “edgy” question about a new innovation, said Brian Knight, senior research fellow at George Mason University’s Mercatus Center, a market-oriented think tank. “The cases where a sandbox is really necessary is when there is a real, legitimate question as to the legality of something, and the business feasibility of something,” he said.
Banks will likely be interested in participating in the program because “no institution wants to be left behind on innovation,” especially when the OCC is open to communicating on the issues, Dana Syracuse, senior counsel at Perkins Coie law firm and former associate general counsel for the New York Department of Financial Services, told Bloomberg BNA.
National banks already interact with many fintech startups “that are essentially third party vendors,” Syracuse said, and fintech companies have been interested in these partnerships to help with essential banking functions. These smaller entities were brought into OCC oversight through the agency’s third part vendor management guidance issued in October 2013 and supplemented in January 2017.
Syracuse said he could see the OCC potentially revising the guidance even further in regard to “new, innovative fintech companies” to give regulated institutions clarity in understanding to what capacity they “can operate these technologies, and learn from them and potentially adopt them as key parts of their infrastructure going forward.”
Since the OCC is the primary regulator of national banks, most participants in the pilot would be under its jurisdiction, although other federal regulators may also have jurisdiction, Knickerbocker said.
Rob Morgan, vice president of emerging technologies at the American Bankers Association said “it’s great” that the OCC is trying facilitate fintech innovation, but the agency must provide protections for banks and ensure regulators coordinate to make sure the pilot works.
To contact the reporter on this story: Sara Merken in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
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