WASHINGTON — The Office of the Comptroller of the Currency's white paper on financial technology innovations was relatively light on details, outlining a series of broad principles it plans to use when examining the sector, but it may be heavy on ambition.
The 11-page paper signaled the agency's intent to take a higher-profile role in ensuring that regulators are not inappropriately hampering banks' adoption of new technologies to reach customers, while also keeping an eye out that institutions are able to handle the risks involved.
"The OCC has demonstrated a great deal of leadership in this area. Much-needed leadership," said Carol Van Cleef, a partner at Manatt, Phelps & Phillips.
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A white paper released Thursday said the agency might issue new guidance on fintech product development, third-party risk management and new products targeting the underbanked; streamline its licensing procedures; and appoint experts on "responsible innovation." It is still deciding whether to open an office dedicated to monitoring the fintech sector.
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The Office of the Comptroller of the Currency is trying to "supercharge" its process for reviewing financial innovations in an effort to keep pace with a glut of new products inside and outside the banking system.
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Dodd-Frank requires the CFPB to encourage financial innovation. The agency's Project Catalyst will colloborate with three alternative companies to gain a better understanding of how to support start-up financial players.
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In the paper, released Thursday, the agency pledged to share more information, encourage innovation within certain bounds and generally rethink processes when it comes to monitoring and regulating new financial products.
Banking industry groups mostly applauded the OCC's move, interpreting it as a sign that regulators are becoming more attuned to the growth and potential of fintech issues in banking.
"With the Comptroller taking this step and saying that every bank is going to need to factor innovation into its strategy, that by itself is going to change how the industry looks at fintech," said Jo Ann Barefoot, a senior fellow at Harvard and consumer financial services consultant.
Financial regulators often display "a cultural programming that tends to make them want to say 'no' and they're going to try not to do that," said Barefoot, who formerly worked for the OCC.
Banks were particularly pleased with the OCC's commitment to opening up lines of communication with the industry, whether through a potential dedicated office on innovation or a "less formal process."
"The 'rules of the road' governing the development of innovative products and services are unclear," the OCC said in its paper.
It pledged to pursue "[a]n ongoing dialogue with all stakeholders, including banks, nonbank innovators, and consumer groups," announced plans for "innovation fairs" with financial institutions and other fintech players and organized a forum on innovation to take place on June 23.
But the OCC is not the only regulator with a growing interest in the area. In 2012 the Consumer Financial Protection Bureau launched Project Catalyst, a plan to gather data and engage with financial technology firms, and it has recently started taking consumer complaints about marketplace lending.
But the OCC's move is "the boldest step from the regulators so far on fintech," Barefoot said. "They're committing themselves to an ongoing learning process and collaborative dialogue."
In a speech at Harvard on Thursday, Comptroller Thomas Curry emphasized that banks are at risk if they don't look at innovative products.
"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," Curry said. "But avoiding new approaches completely is equally dangerous."
Many in the industry agreed.
"Our regulators must be fully immersed in this new world of technology and consumer demand," said Richard Hunt, the president and chief executive of the Consumer Bankers Association. "[W]e must have a regulatory framework that can adapt to today's fast-paced, ever-evolving marketplace."
The white paper's explicit acknowledgement of fintech firms — which have already been known to consider applying for banking charters with the industry — was also significant, experts said.
"The OCC is widening its lens to look at what's being done by nonbanks," Barefoot said. Fintech firms are "less closely scrutinized and they're proliferating and nobody knows exactly what's going on in that complex landscape."
The OCC and its peers understand that they need to learn how to handle the risks early on. "The changes underway are going to disrupt the regulators too," she said.
Community banks agreed the paper was a positive sign that their approach to fintech investments — which tends to involve partnerships with third-party firms — has a place in the regulatory landscape.
It "is certainly signaling that the OCC recognizes that partnerships are viable," said Viveca Ware, the executive vice president of regulatory policy at the Independent Community Bankers of America. "It's going to create a level playing field for small financial institutions."
Still, financial regulators — including the OCC — have a long way to go to get a handle on fintech issues.
"In a perfect world," said Van Cleef, "it would be great if we could see them also ... take on responsibility over providing a federal license [to] money transmitters or money service businesses."
These types of licenses that many fintech companies and in particular digital currency companies have to obtain from the federal government and states have complicated the expansion plans of companies in the field. "The 50-state process of licensing is very cumbersome," Van Cleef said.
But the OCC's move may at least create a conduit for the industry to seek more help.
"Having a clear structure where banks can put these questions into the OCC is a big improvement," said Rob Morgan, the vice president of emerging technologies at the American Bankers Association.
