The OCC has issued an Advance Notice of Proposed Rulemaking (ANPR) seeking comments in connection with a comprehensive review of its regulations on electronic activities of national banks (12 CFR part 7, subpart E) and federal savings associations (12 CFR part 155).  Comments on the ANPR must be received by August 3, 2020.

In the ANPR’s background discussion, the OCC discusses the role of technological developments in allowing new banking products and services to be delivered through innovative and more efficient channels as well as their role in changing back-office banking operations.  The OCC confirms that it continues to seek “to regulate banking in ways that allow for the responsible creation or adoption of technological advances and to establish a regulatory and supervisory framework that allows banks to evolve, while ensuring that safety and soundness and fair treatment of customers is preserved.”  It reviews the history of the existing national bank and federal savings associations regulations on electronic activities and OCC actions taken to facilitate innovation, such as responding to case-by-case industry requests for approval to engage in technology-driven banking activities and the establishing an Office of Innovation.

The topics addressed in 12 CFR part 7, subpart E applicable to national banks include: (1) criteria used by the OCC to determine whether an electronic activity is authorized as part of, or incidental to, the business of banking under 12 U.S.C. 24 (Seventh) or other statutory authority, (2) products and services that national banks can perform, provide, or deliver by electronic means and facilities, (3) data processing, (4) location of a national bank based on electronic activities (5) location of a national bank operating exclusively through the internet, and (6) sharing electronic space, including a co-branded web site, with a bank subsidiary, affiliate, or another third-party.

The topics addressed in 12 CFR part 155 are: (1) authority of a federal savings association to use electronic means and facilities, and (2) requirements for using electronic means and facilities.

In the ANPR, the OCC states that the goals of its review are to evaluate whether its regulations “effectively take into account the ongoing evolution of the financial services industry, promote economic growth and opportunity and ensure that banks operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations.”  Based on the comments received, the OCC may propose specific revisions to its regulations.

The OCC lists the following guiding principles for how it approaches its regulatory framework in the context of innovation and technology:

  • Regulations should be technology-neutral, so that products, services, and processes can evolve regardless of the changes in technology that enables them
  • Regulations should facilitate appropriate levels of consumer protection and privacy, including features that ensure transparency and informed consent
  • Regulations should be principle-based rather than prescriptive to enable effective management of evolving risks and reduce the potential that the regulations quickly become outdated

The ANPR invites comment on a series of specific questions.  It also invites comment on “any other banking issues related to digital technology and innovation” but specifies that the OCC “is not seeking comments on its authority to issue a special purpose national bank charter.”  The questions on which the OCC seeks comment include:

  • Whether the legal standards in the existing regulations are sufficiently flexible and clear or create unnecessary hurdles or burdens to the use of technological advances or innovation in banking
  • Whether there are digital banking activities or issues that are not covered or sufficiently addressed by the regulations that the OCC should address (e.g., digital finders’ activities, software produced, marketed, or sold by banks, correspondent services)
  • How are artificial intelligence techniques, including machine learning, used or potentially used in activities related to banking and are there ways the banking industry could be, but is not, using AI because of regulatory complexity, lack of transparency, audit and audit trail complexities, or other regulatory barriers
  • What new payments technologies and processes should the OCC be aware of and what are the potential implications of these technologies and processes for the banking industry