OCC Regulator Describes Challenges Ahead for Office Of Financial Technology

The OCC Acting Deputy for the Office of Financial Technology ("OFT") Donna Murphy testified on the agency's "analysis and evaluation of financial technology innovations, trends, emerging risks, and implications for OCC’s supervised banks."

In her oral and written statements before the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, Ms. Murphy described the OFT's challenges in balancing safety, soundness and fairness with innovation and growth in the rapidly evolving financial technology landscape. She highlighted the OCC's Responsible Innovation Framework as guiding the OFT's supervisory approach to ensure "responsible and sustainable" FinTech innovation and emphasized that "banks should engage risk managers, compliance professionals, and regulators from the outset and through each step of the process."

Ms. Murphy stated that the OCC maintains a technologically neutral posture "neither requiring, nor prohibiting adoption of any particular technology or business model." She highlighted the agency's issuance of "principles-based" guidance designed to accommodate evolving technologies and business models supporting the OCC's supervisory focus on bank-Fintech partnerships, artificial intelligence ("AI"), digital assets, tokenization and other emerging technologies.

On AI, she underscored the agency's cautious approach while recognizing its potential benefits for strengthening safety and soundness, enhancing consumer protections and increasing access to banking services. She warned of adverse outcomes, however, if bank use of AI is not properly managed and controlled. These adverse outcomes "can be caused by poorly designed underlying mathematical models, faulty data, changes in model assumptions over time, inadequate model validation or testing, or limited human oversight." She said that these causes can lead to "a lack of explainability of outcomes, bias or inaccuracies due to poor quality data or data management, failure to preserve consumer privacy and data security, and risks resulting from reliance on third party vendors if banks do not implement an effective third-party risk management program."

On crypto-assets, Ms. Murphy noted that a small number of OCC-supervised banks have launched crypto-asset products and continue to develop distributed ledger technology-based intrabank systems. She said that the OCC anticipates a shift towards tokenization of real-world assets and liabilities.