OCC Urges Banks to Practice ‘Responsible’ Innovation

Banks are more relevant today than they ever were due to the services they provide to their communities, according to Comptroller of the Currency Thomas J. Curry in a speech on Thursday. The rise of financial technology companies, or “fintechs” has presented a challenge to banks, however-which creates a need for banks to keep up with technology and make improvements to financial products and services they offer.

While banks need to adapt in order to prosper and Curry said the OCC’s objective is to engage the banks it supervises in innovation that will be beneficial to consumers and businesses, there is a difference between “responsible” innovation and just plain innovation, he said.

“But recalling the lessons of the financial crisis, when some ‘innovative’ products such as subprime mortgages and financially engineered securitizations were used in ways that had disastrous consequences for individuals, communities, and our economy, we want to be sure that the banks and thrifts we supervise innovate in a way that is compatible with safety and soundness and consistent with consumer protection laws and regulations,” Curry said in his speech at Harvard Kennedy School’s New Directions in Regulation Seminar in Cambridge, Massachusetts, on Thursday. “In short, what we are trying to encourage is responsible innovation.”

To this end, the OCC released a white paper on Thursday titled “Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective” that outlines eight principles the agency plans to use to guide the development of its innovation framework. The OCC is currently soliciting comments from the public on the framework.

“At a minimum, we’ll want to be sure we have the capacity to identify and understand new trends and technology, as well as the emerging needs of the consumers of financial products,” Curry said. “We want to be sure we’re in a position to quickly evaluate products that require regulatory approval and identify the risks that go with them—as well as the safeguards that will be necessary to manage those risks. And we want to be a resource for banks and thrifts looking for guidance on our supervisory expectations as they consider new and innovative products.”

The eight principles outlined by the OCC are:

• Support responsible innovation.
• Foster an internal culture receptive to responsible innovation.
• Leverage agency experience and expertise.
• Encourage responsible innovation that provides fair access to financial services and fair treatment of consumers.
• Further safe and sound operations through effective risk management.
• Encourage banks of all sizes to integrate responsible innovation into their strategic planning.
• Promote ongoing dialogue through formal outreach.
• Collaborate with other regulators.

Click here to view the OCC’s white paper.

Click here to view Curry’s speech.