The OCC’s announcement that it will create an Office of Financial Technology to “bolster the agency’s expertise and ability to adapt to a rapidly changing banking landscape” should come as no surprise to those reading the recent statements from Acting Comptroller Michael J. Hsu have pursued.
In recent months, Mr. Hsu has frequently raised concerns about the need for the OCC to develop an in-depth understanding of the technologies deployed by banks, including in the context of bank-fintech partnerships and banks’ involvement in cryptocurrency products.
In its short version press release On October 27, 2022, the OCC announced that the Office of Financial Technology, to be established in early 2023, will comprise the agency’s Office of Innovation and will provide “strategic leadership, vision and perspective” for the OCC’s financial technology activities and the related supervision. Mr. Hsu, quoted in the press release, cited the rapid development of fintech and the continued growth of bank-fintech partnerships as factors driving the establishment of the new office, stating, “Ensuring that the federal banking system is safe, sound.” and fair is today and well into the future we need to have a deep understanding of FinTech and the FinTech landscape… Establishing this office will allow us to be more agile and encourage responsible innovation in line with our mission.”
Further insight into the likely goals and activities of the new Office of Financial Technology can be gleaned from Mr. Hsu’s comments in various places over the past few months. For example in Sep 2022, Mr. Hsu expressed his desire for the OCC to develop a “more sophisticated” understanding of bank-fintech arrangements, citing concerns about the “unknown” risks posed by the transition to digital banking services and citing the work that then underway at the OCC to assess risk profiles of bank-fintech partnerships. in the October 2022, Mr. Hsu said that the OCC is considering enhanced oversight procedures to better understand banks’ involvement in crypto firms and platforms. Readers of our Consumer Finance Monitor will recall our blogs published over the past few months, which echoed many more statements in which Mr. Hsu expressed the need for increased scrutiny of banks’ forays into new technologies.
Industry observers will note that the Consumer Financial Protection Bureau (CFPB) has also recently made strategic and structural changes to increase its oversight of technological developments affecting the provision of consumer financial services. In May 2022, the CFPB announced Replacing its Innovation Office with a new Competition and Innovation Office, shifting the Office’s focus away from encouraging companies to innovate without fear of regulatory resentment to a focus on “promoting fair, transparent and competitive markets” in which “Consumers have choices, the best products win, and large incumbents cannot stifle competition by exploiting their network effects or market power.”
While the OCC cites its mission to ensure safety and soundness as a key driver of its new initiative, and the CFPB’s announcement emphasizes its goal of increasing competition, both agencies also cite fairness as a goal in setting up their respective new offices. It remains to be seen how ‘fairness’, or lack thereof, will be addressed in the authorities’ respective technology-related activities, oversight and enforcement strategies. However, all banks, fintechs and other financial service providers are aware that more intensive monitoring and scrutiny of their financial technology activities by both the OCC and the CFPB is imminent. We have previously assisted banks and other entities regulated by the OCC and CFPB to prepare for exams focused on the use of technology, particularly in the context of bank-non-bank fintech arrangements.