CBA Comment Letter re OCC’s Advanced Notice of Proposed Rulemaking on Digital Activities

Dear Acting Comptroller Brooks:

The Consumer Bankers Association (“CBA”) appreciates the opportunity to comment on the Office of the Comptroller of the Currency’s (“OCC”) advanced notice of proposed rulemaking (“ANPR”) on digital activities and supports the OCC’s efforts to modernize and promote responsible innovation within the banking system.

A modernized banking system has the potential to benefit both consumers and industry. Consumers are likely to benefit from more efficient services, greater access to credit and more control over their products. Industry would benefit from the ability to more quickly and more smoothly innovate and improved data on the customers they serve.

The technological innovations over the last 10 to 15 years have placed an on-demand world of products and services at consumers’ fingertips. The banking industry is modernizing the way it serves customers by harnessing the same technological forces which have transformed the delivery of books, music, movies and many more consumer transactions. Simultaneously, these same forces have given rise to new entrants into the financial services marketplace who are leveraging mobile networks and cloud-based computing systems to “disrupt” traditional banking models. However, these new entrants have also introduced new risk into the banking system with little to no accountability.

While CBA applauds the OCC’s sentiment and share its goals for a modernized, safe and sound banking system, we urge the OCC to work with its fellow banking regulators to make sure nonbank financial companies are being held to the same standards as banks. The current regulatory environment places banks at a competitive disadvantage and disproportionately responsible for the increased risk in the banking system.

The remainder of this letter is organized according to the issues for comment presented by the OCC. Note, the CBA membership did not have significant feedback for every issue posed in the ANPR.

I.  No Action is Needed Regarding the OCC’s Legal Standards

In general, CBA member banks feel the OCC’s regulations in Part 7, Subpart E are flexible enough to address evolving technologies. Banks have not found themselves constrained by the OCC’s regulations and hope to continue to rely on the flexibility in the OCC’s regulations to engage in innovation activities. As a result, we recommend no further action from the OCC on Part 7, Subpart E at this time.

II.  Most Banks Are Currently Unable to Offer Crypto or Distributed Ledger Services

Fundamentally, banks believe they are at a competitive disadvantage with activities related to cryptocurrencies, cryptoassets, and distributed ledger technologies. Most of CBA’s membership offers limited to no crypto services in the retail bank. Unlike fintechs, if they wanted to be more active in offering cryptoservices, banks would be unable to meet their Bank Secrecy Act (“BSA”) Anti-Money Laundering (“AML”) requirements. CBA urges the OCC to coordinate with other regulators to bring more clarity and consistency to how crypto activities are supervised among banks and nonbank financial companies. More specifically, we urge regulatory coordination to create a taxonomy which  recognizes the cryptocurrency and digital assets universe is a bifurcated space that needs clearer regulatory guidance.

In regards to distributed ledger technology, there are many use cases that could help banks improve efficiency on behalf of their customers.  Ideally, banks would be able to use it to modernize how they validate the identity of their customers and build trust faster. In general, most banks are discussing using distributed ledger technology for the retail side, and for some, it is already being used in the commercial bank. Clients are already able this technology overseas and would like the ability to transact domestically. Banks are open to principles-based regulatory guidance to explain how identification verification can be captured and used, how it is defined in this technology and how this information can be shared from a privacy perspective. 

III.  Level the Playing Field Between Banks and Non-Banks When Using AI Techniques

Banks have incorporated artificial intelligence (“AI”) and machine learning into many areas of the bank. For example, in fraud, artificial intelligence helps to identify trends in fraudulent activity, and as a result, it update tools based on machine learning. Many banks have partnered with nonbank companies to access various AI and machine learning technology. Unfortunately, many banks have also expressed difficulty with getting the necessary information from vendors to validate their technology through the bank’s model risk management teams. 

Moreover, CBA members generally believe the existing model risk framework (“MRM”) guidance is sufficiently principle-based and forward looking, and is flexible enough to address AI technology. However, it would be helpful if the OCC would update the existing MRM guidance to provide more variation on risk besides “material” and “immaterial” models.

Most importantly, CBA urges the OCC to coordinate its AI efforts with other regulators to ensure consistent guidance, such as the Federal Reserve and FDIC, e.g. the MRM guidance and other OCC initiatives to review specific technologies, and the CFPB, e.g. AI in fair lending, AI in Fair Credit Reporting and covering nonbanks. CBA believes it is critical to ensure a level playing field among banks and no-banks by subjecting non-banks to similar MRM framework. The OCC should work with the CFPB to ensure consistent MRM expectations across banks and nonbanks. This will ensure both banks and non-bank companies apply consistent and robust risk management and controls to their AI tools to mitigate various risks, including data quality issues, discrimination and privacy issues.

IV.  Update Regulations to Consider Remote Work Locations and to Supervise Disintermediaries

As banks continue to modernize, the ability to complete more banking services online or through some other digital mechanism will continue to grow. CBA believes the OCC should review and update existing regulatory framework, including regulatory guidance, to contemplate and address financial institutions safely and securely providing financial services, including funds transfer services, from remote or alternate work locations.  (See, e.g., FFIEC IT Examination Handbook - Wholesale Payment Systems, Appendix A, Tier II Examination Procedures, Objective 9)  The ability to perform financial services, including funds transfer services, from remote or alternate work locations is critical to business continuity, and the personally safety of employees performing such services should also be a priority for the OCC. CBA urges the OCC to modify regulations to reflect a more mobile and remote workforce in a post COVID-19 world.  

Banks are also seeing a growing demand for real-time payment services, which will lead to increased investing in the digital space. However, the most pressing issue for banks is the increased risks added to the system by nonregulated entities. Fintechs are able to disintermediate and avoid accountability and maximize their revenue because of the lack of supervision. This increases costs for banks and limits banks ability to provide additional services to their customers. CBA urges the OCC to coordinate with its fellow regulators to level the regulatory playing field between banks and nonbanks.

         V. Regtech is Limited at Best for Banks

Regtech work in the U.S. is still in its developing stages. Banks have begun to partner with fintechs, and we foresee this trend continuing as banks look to manage regulatory requirements in and beyond the COVID-19 crisis. However, regulatory compliance is extremely nuanced, and banks are unsure how innovative they will be in this space. One area where banks agree the OCC can support innovation is in the AML space.

CBA believes regulation needs to promote standardizing data and regulatory reporting requirements across business areas, especially on an interagency basis. The OCC can play a more active role in  partnering with industry to stay up to date with new technologies and data science and to help promote investment in this space

CBA again emphasizes the need for a level playing field between fintechs and banks. For example, banking regulators expect traditional banks to continue have a large branch presence, yet there is not a similar expectation with fintechs providing similar products and services.

VI.  Smaller Banks Are Relying More Heavily on Fintech Partnerships

Although the CBA membership primarily consists of the nation’s largest retail banks, historically, the technology utilized by larger financial institutions slowly trickles down into the smaller bank arenas. In addition, smaller institutions do not typically have access to the compliance or legal expertise to advise on digital products and/or services. As a result, this may cause an over reliance on products and services through third party vendors. Fintech partnerships offer the most cost effective method for small banks to access technology sooner. However, as previously mentioned, fintechs are often not easily transparent about their methodology or willing to share necessary data with smaller banks for their model risk management staff to review on a timely basis. Another example of how consolidated supervision for fintechs would better protect both industry and consumers

VII.  COVID-19 Has Highlighted the Need for a More Nimble Banking System

To begin, the E-sign Act should be updated for a 21st century way of banking. CBA urges the OCC to simplify electronic consent requirements. One way to simplify electronic consent requirements is for the OCC (and other regulators) to not require disclosures be made “in writing,” so that electronic disclosures be made more easily. CBA believes the modernization of the E-sign Act is a top priority and we are supportive of S.4159 which would alleviate the burden around reasonable demonstration requirements.

Next, in regards to digital banking, studies have shown that most banking customers continue to want access to physical branches along with digital banking options. Current regulations tend to force an “all or nothing” approach to digital banking. The OCC should aim to promote an omni-channel approach, permitting customers to access both digital banking and physical branches.

Most importantly, CBA urges the OCC to prioritize employee safety. There is conflicting state and federal guidance on social distancing and mask requirements applicable to essential businesses. The OCC should make it clear what type of guidance banks can rely on to promote employee safety during the pandemic.

VIII.  Conduct an Open and Transparent Process Before Issuing Any Special Purpose Charter

CBA believes the banking industry flourishes when there is a clear and consistently applied set of rules for all market participants. CBA supports competition in banking, charter choice, and tailoring regulatory requirements. However, we have serious concerns a rush, ill-advised special purpose charter could introduce more unnecessary risks which would undermine the valuable role banks play in the economy. CBA urges the OCC to proceed carefully and transparently when deliberating any type of special purpose charters. The result of the OCC’s deliberation will have broad implications for the banking system and for the economy. Any change should be subject to robust public comment.

IX.  Conclusion

CBA supports the OCC’s work to continue innovation in banking. We believe a critical corner stone of the banking system is customer trust in its safety and soundness. To ensure a more secure and robust banking system, the OCC should prioritize making sure all market participants are supervised at the same level as banks. Banks are eager to innovate and offer their customers more personalized and dynamic products, but we also do not want to be placed at a competitive disadvantage. Innovation has the potential to improve transparency, provide customers with more customize options and promote financial inclusions. However, the benefits of banking modernization and innovation are only realized when they are delivered responsibly in a way which facilitates the appropriate levels of consumer protection and privacy.

If you have any additional questions or concerns, please do not hesitate to contact André Cotten at 202-552-6360 or at




André B. Cotten

Assistant Vice President, Regulator Counsel

Consumer Bankers Association

1225 New York Avenue

Suite 1100

Washington, DC 20005