OCC Seeks Public Comment On Innovation Pilot Program

The OCC’s Innovation Pilot Program

The headlines in recent weeks tied to the Office of the Comptroller of the Currency (OCC) have centered on legal disputes over national bank charters for FinTech companies.

As has been reported in past weeks, a ruling handed down by a federal judge in New York State has found that a suit from the New York State Department of Financial Services seeking to stop progress on those charters can proceed. A request by the Office of the Comptroller of the Currency to dismiss the financial department’s suit was denied.

In the meantime, the OCC opened up a 45-day public commentary period for an Innovation Pilot Program that would embrace bank efforts to participate in pilots for innovation in financial services that can last as long as 24 months. The commentary period is up as of June 14. The pilot is designed to help guide banks as they seek to test new offerings, including when they link up with FinTechs. It should be noted that the aforementioned lawsuits and the pilot program do not overlap.

To that end, and in commentary provided to PYMNTS during written exchange, Paul Ross, with the OCC’s office of public affairs, said that with the commentary period still open, it’s too early to characterize the feedback thus far.

But, speaking generally, he said the proposed pilot program builds on the Office of Innovation’s initiatives to date. “The program would provide a consistent and transparent framework for eligible entities to engage with the OCC on pilots,” he said, describing the pilots, which are voluntary, as “small-scale, short-term tests” to determine feasibility or consider how a large-scale activity might work in practice.

The entities eligible for the pilot program include OCC-supervised financial institutions, a roster of companies that engage third parties. The pilots will exist separately from the OCC’s licensing process. As Ross told PYMNTS, the program “would not provide an entity an expedited path toward an OCC charter. Third parties, such as FinTechs, may not independently submit a proposal for the proposed pilot program.”

The initial areas of collaboration between traditional FIs and FinTechs would depend on what Ross termed “individual facts and circumstances presented by each proposal, and the OCC would not endorse or prioritize any particular technology or activity within the program. The proposed program focuses on novel activities where uncertainty is perceived to be a barrier to development and implementation.”

Some of those areas of interest may include how artificial intelligence may be leveraged to improve anti-money laundering compliance, to use alternative data in credit underwriting and to enable banks to use distributed ledger technology.

Asked about where things stand with national charter efforts, against a backdrop where FinTechs seem to have held off on applying for those charters, Ross said there would be no further commentary on ongoing litigation, but that he “remains confident in its view of its authority to issue a special purpose national bank charter.” He added that “it is important to note FinTech companies are not eligible to independently submit a proposal for the proposed pilot program. However, as FinTech companies consider partnering with national banks, it is possible that an OCC-supervised entity would be interested in participating in the proposed pilot program while engaging that third party to offer an innovative activity.”

Looking beyond the comment period, the OCC will consider further refinements to the program and announce the effective date. “As written, this is a program that the OCC is comfortable moving ahead with and could be open by the end of the year,” said Ross. The effective date might be changed, depending on the nature and extent of comments received on the pilot program.

Separately, and beyond the confines of the U.S., Baoshang Bank, based in Inner Mongolia, has been taken over by China’s banking and insurance regulator over critical credit risks. That takeover, by both the Insurance Regulatory Commission and the People’s Bank of China, started this past Friday (May 24) and will extend across a year. This is the first takeover in 20 years of a Chinese bank, amid concerns about credit quality and capital buffers.

Baoshang’s outstanding loans totaled 156.5 billion yuan ($22.68 billion) at the end of 2016, which is a leap of 65 percent since 2014, as noted in this space. The bank’s non-performing loan ratio, as of December 2016, was 1.68 percent. The bank hasn’t presented any yearly reports since that time, saying it was going to find strategic investors.



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