The Office of the Comptroller of the Currency ("OCC") published the latest summary of its "Innovation Initiative." The initiative has undertaken the development of a framework to improve the agency's "ability to identify and understand trends and innovations in the financial services industry, as well as the evolving needs of consumers of financial services."
In the white paper titled "Supporting Responsible Innovation in the Federal Banking System," the OCC defined responsible innovation to mean "[t]he use of new or improved financial products, services and processes . . . consistent with sound risk management and . . . aligned with the bank's overall business strategy." Having surveyed the regulators it deemed most "resilient" during the financial crisis, the OCC listed the negative risks associated with certain kinds of innovation, and noted the importance of emphasizing effective risk management and corporate governance in defining responsible innovation.
The OCC stated that it would support innovation that is "consistent with safety and soundness, compliant with applicable laws and regulations, and protective of consumers' rights," and highlighted eight principles that were designed to reflect that goal and guide the development of its framework for evaluating products, services and processes. Those principles emphasized the need to "[s]upport responsible innovation" and "[f]oster an internal culture receptive to responsible innovation."
In a speech delivered at Harvard Kennedy School's New Directions in Regulation Seminar, Comptroller of the Currency Thomas Curry conceded that "the banks we supervise – as well as [financial technology companies] – might view us as inhospitable to innovation." He also acknowledged that the competitiveness of traditional banks is challenged increasingly by financial technology companies. Comptroller Curry summarized his own views as follows:
Not every innovation is appropriate for a regulated financial institution, and not every innovation that is appropriate for a regulated institution is appropriate for all regulated institutions. But avoiding new approaches completely is equally dangerous. Banks have to continuously adapt to prosper, and we, as regulators, have to be knowledgeable enough to understand new technology and nimble enough to render timely decisions on matters requiring regulatory approval, as well as guidance about our supervisory expectations [emphasis in original].
The OCC is soliciting comments, which are due by May 31, 2016, on all aspects of the paper.