CBA Comment Letter re OCC's Innovation Pilot Program Proposal



Ms. Beth Knickerbocker

Chief Innovation Officer, Office of Innovation

Office of the Comptroller of the Currency

400 7th Street, SW

Washington, DC 20219



            Re: Innovation Pilot Program Proposal


Dear Mrs. Knickerbocker:


            The Consumer Bankers Association (CBA) appreciates the opportunity to provide its comments in response to the Office of the Comptroller of the Currency’s (OCC) proposed Innovation Pilot Program (the “Proposal” or the “Program”). We agree with the OCC’s goal “to add value through constructive, proactive supervision.” As the OCC is aware, emerging technologies have shifted the way banks engage and connect with customers. Banks of all sizes are continuing to embrace innovation and to explore ways to better serve their customers. CBA and its member banks believe appropriately tailored supervision has the ability to spark innovation, which will benefit both consumers and industry.


            While we support the Proposal, we urge the OCC to further refine its policy and closely align it with the well-established and effective programs of other federal regulators, (e.g. the Securities and Exchange Commission (SEC), Commodities Futures Trading Commission). Here are some recommendations to strengthen the OCC’s Innovation Pilot Program:


  • Strengthen the value add to banks by increasing regulatory certainty;
  • Provide greater detail about the mechanics of the Innovation Pilot Program; and
  • Clarify the process for exiting the Program.


CBA believes this effort will help usher the change necessary to promote reasonable innovation. Banks need the ability to adopt the same innovative design practices followed by leading non-financial, technology firms. CBA is pleased with the mission and the work of the Office of Innovation, and we look forward to continuing to serve as a resource as the office continues to strengthen and grow. The OCC’s Office of Innovation has the ability to introduce new business models to the banking systems, clarify regulatory expectations, and educate examiners about the evolving landscape of financial technologies.


 With this in mind, the central regulator for financial services in the United Kingdom (UK), the Financial Conduct Authority (FCA), offers an excellent example of a program which promotes reasonable innovation. In 2014, the FCA launched its “Project Innovate,” an initiative to support innovation where it could improve the lives of consumers.  Through Project Innovate, the FCA sought to provide greater direct support of all financial services innovation by giving companies assistance with navigating regulatory requirements. The regulator’s assistance program also includes direct engagement regarding product and service development before a formal application to be authorized is submitted. The FCA often works directly with financial services firms to test innovative tools. Furthermore, the regulator uses the knowledge and experiences its gains through these interactions with financial services firms to better hone their rules and supervision. We believe the OCC Innovation Pilot Program can achieve the same level of proficiency as Project Innovate to support, regulate and supervise banks.


CBA recognizes the importance of a bank’s ability to innovate and to partner with non-bank entities to deliver customers the best financial services experience possible. The OCC Innovation Pilot Program has the ability to create another avenue for banks to test new innovations in the market with the support and engagement of the OCC. CBA believes a measured and responsible implementation of the Program will promote responsible innovation, which will benefit both industry and consumers.


  1. Strengthen Regulatory Certainty for Banks Engaged in Innovation


Financial services innovation has historically benefitted consumers and continues to have tremendous potential to do so. As the history of banking amply demonstrates, innovation promotes financial inclusion, expands access to credit, and improves access to information, which in turn, supports informed decision-making and financial well-being. Today, many banks have already initiated relationships with their regulators to continue to innovate and offer customers enhanced products and services. The OCC needs to clarify the Innovation Pilot Program is not required for banks to test a new product or service in a pilot program. Similarly, CBA urges the OCC to clarify it is perfectly acceptable for a bank to pilot a product or service on its own, and the absence of participating in an OCC construct will not create any adverse inference on the pilot or the bank’s management.  Absent an explicit statement from the OCC, banks may be discouraged to innovate or feel pressured to participate within the OCC’s Innovation Pilot Program.


The Program should encourage banks to innovate, while being certain they will not be penalized for trying to better provide services for their customers. Innovation is often an iterative process, which naturally involves several attempts to develop workable solutions. Regulations need flexibility in order to avoid situations where overly tempered approaches to risk can cause serious and lasting deficits in product and service innovation. Note, ideally, the Program would allow for the acceptance and controlled growth in innovation without stifling it. A successful innovation program needs to accommodate the disruptive process of innovation and harness the potential opportunities for positive change.


            In the Spring 2019 Semiannual Risk Perspective Report, the OCC identified a financial firm’s inability to innovate as a source of significant strategic risk. If financial regulators, including the OCC, fail to create a more certain environment, innovative companies will likely forego investments which would benefit U.S. consumers. As a consequence, talent and investment in financial services innovation will flow to countries where regulators support innovation through reducing regulatory uncertainty, exercising enforcement discretion, and ultimately, amending outdated and unduly burdensome rules. To combat these detrimental possible scenarios, it is imperative the United States encourage responsible innovation in the financial sector, whether by a new entrant, traditional financial institution, or by a joint initiative of the two.


  1. Amend Rules Which Demonstrate a Need for Reconsideration Based on Pilot Program Experience


            CBA also urges the OCC to account for experience with or evidence gathered through the Innovation Pilot Program experience to, when appropriate, amend certain regulations or provide guidance clarifying an interpretation of a rule or statute. By amending unnecessary, or outdated rules or clarifying ambiguities through guidance, the OCC will create a level playing field so all market participants know and benefit from the interpretation. CBA urges the OCC to commit to initiating a rulemaking to amend relevant regulation or to issuing guidance, after providing the opportunity for public comment, based on the information learned through the Innovation Pilot Program process.


With a measured approach to regulation and innovation, we believe the OCC’s Innovation Pilot Program will help to facilitate smarter and fairer financial services without sacrificing customer confidence and trust. The OCC can provide the most value for banks by making it clear the program is voluntary and focusing on areas where existing regulation is unclear.


  1. Lead Coordination with Other Regulators on Consumer Finance Matters


CBA believes all relevant policymakers need to operate from the same game plan to encourage significant innovation. There are many players in financial services regulation which can lead to overlapping jurisdiction and policy inconsistencies. We believe open communication and consistency among the financial service regulators will provide the clarity needed to advance innovation in a highly complex regulatory and supervisory environment.


As recognized by the United States Department of Treasury in its Report on Nonbank Financials, Fintech and Innovation, “[I]t is critical not to allow fragmentation in the financial regulatory system, at both the federal and state level, to interfere with innovation, including permitting meaningful experimentation by financial services firms to create innovative products, services, and processes.”  From reviewing the OCC’s proposal, it does not seem like the Program would meet the Treasury’s aforementioned objective in its current form.