The OCC’s announcement that it will establish 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 who have been following recent pronouncements of Acting Comptroller Michael J. Hsu.
Over the past few months, Mr. Hsu frequently has shared concerns about the need for the OCC to develop in-depth understanding of the technologies banks are adopting, including in the context of bank-fintech partnerships and bank involvement with cryptocurrency products.
In its brief press release on October 27, 2022, the OCC announced the Office of Financial Technology, to be launched in early 2023, will incorporate the agency’s Office of Innovation, and is intended to provide “strategic leadership, vision, and perspective” for the OCC’s financial technology activities and related supervision. Mr. Hsu, quoted in the press release, cited rapid evolution of financial technology and the ongoing growth of bank-fintech partnerships as factors driving establishment of the new office, and stated “To ensure the federal banking system is safe, sound, and fair today and well into the future, we need to have a deep understanding of financial technology and the financial technology landscape…The establishment of this office will enable us to be more agile and to promote responsible innovation, consistent with our mission.”
More insights into the likely goals and activities of the new Office of Financial Technology can be gleaned from Mr. Hsu’s comments in various venues over the last several months. For example, in September 2022, Mr. Hsu expressed his desire that the OCC develop a “more sophisticated” understanding of bank-fintech arrangements, cited concerns about the “unknown” risks posed by the transition to digital banking services, and referred to work then in progress at the OCC to evaluate risk profiles of bank-fintech partnerships. In October 2022, Mr. Hsu said the OCC was considering enhanced supervisory processes to better understand banks’ involvement with crypto firms and platforms. Readers of our Consumer Finance Monitor will recall our blogs issued in the last several months recounting many more statements expressing Mr. Hsu’s recognition of the need for enhanced scrutiny of banks’ forays into emerging technologies.
Industry observers will note that the Consumer Financial Protection Bureau (CFPB) also made recent strategic and structural changes to step up its oversight of technology developments affecting the provision of consumer financial services. In May 2022, the CFPB announced replacement of its Office of Innovation with a new Office of Competition and Innovation, shifting the bureau’s emphasis away from encouraging companies to innovate without fear of regulatory displeasure to instead focus on “promotion of fair, transparent and competitive markets” where “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 primary driver of its new initiative and the CFPB’s announcement emphasizes its goal of increasing competition, both agencies also cite fairness as an objective in establishing their respective new offices. It remains to be seen how “fairness”, or the lack thereof, will be dealt with in the agencies’ respective technology-related activities, supervision, and enforcement strategies. However, all banks, fintechs and other financial services providers are now on notice that more intense supervision and examination of their financial technology activities will be forthcoming from both the OCC and the CFPB. We have already been helping banks and other companies supervised by the OCC and CFPB in getting ready for examinations that will focus on the use of technology, particularly in the context of bank-nonbank fintech arrangements.