On April 30, 2019, the Office of the Comptroller of the Currency (“OCC”) opened a 45-day public comment period on its Innovation Pilot Program (the “Program”). In accordance with the agency’s objective of providing constructive and proactive supervision, the OCC’s proposed Program is intended to encourage the testing of innovative activities – including products, services, and processes – to benefit consumers and financial institutions. The Program is another in a series of OCC initiatives aimed at fostering responsible deployment of financial technology , or “fintech,” in the institutions the OCC supervises. The Program is not limited to fintech activities, however; the OCC does not intend to limit participation based on size, complexity, or business model. Comments on the Program are due no later than June 14, 2019.
Since 2015, the OCC has developed initiatives and examined regulatory sandbox models with the goal of supporting responsible innovation. For instance, in 2016, the OCC established an Office of Innovation with offices in New York, San Francisco, and Washington, to serve as a resource for innovation-related matters and facilitate discussions with industry. The OCC’s latest decision to launch the Innovation Pilot Program builds on existing efforts and provides a framework for small-scale, short-term tests – or pilots – to determine the feasibility of new activities at scale.
Key Program objectives include:
- Supporting the development and delivery of more effective and efficient activities within the U.S. financial system;
- Engaging with eligible entities regarding safety and soundness expectations, risk management principles, and compliance requirements;
- Improving the OCC’s understanding of, and supervisory approaches to, innovative activities and their related risks;
- Encouraging the development of controls and safeguards commensurate with the type, scale, and risk posed by innovative activities; and
- Promoting OCC policy objectives, while avoiding those that might unintentionally or unnecessarily inhibit responsible innovation.
To be eligible to participate in the Program, an entity must demonstrate: (1) that the OCC’s involvement in the pilot is appropriate; specifically, that the proposed activity is within the scope of the OCC’s supervisory authority and involves uncertainty that may be a barrier to its development or implementation; and (2) how the activity has the potential to achieve one or more specific Program goals, including, for example, promoting financial inclusion, fair access, and fair treatment of consumers or small businesses, or improving the efficiency of bank processes, operations, or the provision of financial services.
Third parties are prohibited from submitting proposals independently, but eligible entities can propose a pilot individually, collaborate with multiple banks, or partner with a third party that has been engaged to offer innovative activities. Pilot programs generally will range from 3 months to not more than 24 months in duration.
Importantly, the OCC is not providing a safe harbor from financial or consumer protection requirements, so all participating entities must comply with applicable laws and regulations. Entities also are expected to incorporate reasonable controls and safeguards into the design of proposed activities. The Program may include the use of tailored regulatory tools, however, including the use of interpretive letters (which an applicant could request in order to establish the legal permissibility of a proposed activity), supervisory feedback, and technical assistance.
Eligible entities are encouraged to engage with the OCC in preliminary discussions about proposed pilots to allow for informal feedback before submitting an application, referred to as an expression of interest (“EOI”), to the Office of Innovation. The EOI “should be tailored to the scope and complexity of the proposed pilot” and include key details, such as the pilot’s objectives, expected outcomes, governance process, and the scope of OCC engagement.
The OCC will consider proposals in various states of development, including proofs of concept and pilots that call for limited beta testing.