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FinTechs Prompt OCC to Create New Division

Regulators are taking notice of the recent exploding popularity of FinTech companies in the financial services industry, and they are responding.

Earlier this week, the Consumer Financial Protection Bureau issued its first-ever Project Catalyst Report [1] to highlight market developments (including mortgage servicing platforms and expanding responsible access to credit) that can potentially benefit consumers; the report included developments from both emerging FinTech startups and traditional financial services institutions, and highlighted Project Catalyst’s work to ensure that consumer protections are included in emerging products and services from the start. Many of the startup FinTechs are offering mortgage products.

The Office of the Comptroller of the Currency (OCC) has also taken notice of the rise of FinTechs in the financial services industry—and taken action in response. On Wednesday, the OCC announced the creation of an Office of Innovation which will be dedicated to responsible innovation in the financial industry. The Office of Innovation will begin operations sometime during the first quarter of 2017.

The OCC also announced on Wednesday it will implement a formal framework aimed at improving the agency’s ability to identify, understand, and respond to financial innovation that will affect the nation’s banks. Beth Knickerbocker has been named acting Chief Innovation Officer to support implementation of the framework.

“The OCC supports responsible innovation that enhances the safety and soundness of the federal banking system, treats customers fairly, and promotes financial inclusion,” said Comptroller of the Currency Thomas J. Curry. “By establishing an Office of Innovation, we are ensuring that institutions with federal charters have a regulatory framework that is receptive to responsible innovation and the supervision that supports it.”

Also on Wednesday, the OCC announced it is still assessing whether or not to grant a special purpose national bank charter to non-bank FinTechs. The agency said it has not made a determination whether to charter non-bank FinTechs but did say it will be publishing a paper later this year that discusses issues around establishing a special purpose charter for these firms, and that it will be seeking public comment.

The OCC’s assessment of granting a special purpose national bank charter to nonbank financial technology companies, and under what conditions, continues. The OCC has made no determination regarding chartering of these firms. The agency plans to publish a paper later this year discussing the issues associated with establishing a special purpose charter and seeking comment on the topic. An entity that has a national bank charter would be allowed to operate under a uniform federal standard without being held back by state or local regulations.

The Comptroller has spoken publicly several times this year on the rising popularity of FinTechs. Curry said in an address [2] in mid-March that even though many tech-savvy consumers prefer the conveniences a fintech offers, it would be “wrong to assume” that fintechs would replace banks. In another address at the end of March [3], Curry stressed the need for banks to be innovative to keep up with fintechs but at the same time he emphasized the differences between “responsible” innovation and just plain innovation. Also in late March, the OCC released a white paper [3] which advocated for responsible innovation in the industry as opposed to just plain innovation.

Click here [4] to view the OCC’s Recommendations and Decisions for Implementing a Responsible Innovation Framework.