Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
AmericasNovember 7 2022

Cautious welcome for US regulator’s new fintech office

The OCC has announced a new fintech office in response to rising financial digitalisation, creating a fork in the road that leads either to rigid regulation or innovation inspiration. Bill Lumley reports.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Cautious welcome for US regulator’s new fintech officeImage: Bloomberg Mercury

The announcement that US regulator the Office of the Comptroller of the Currency (OCC) is to open a fintech office next year has met with a mixed but largely positive reaction from both financial services companies and fintech providers.

The move follows a warning from OCC acting comptroller Michael Hsu that de-integration is making the banking sector susceptible to systemic risk. If left unchecked, he said, it could potentially trigger a financial crisis.

The new office is set to launch in early 2023 and will be overseen by a chief financial technology officer reporting to the senior deputy comptroller for bank supervision policy.

Ahead of the announcement in September, Mr Hsu said digitalisation had “put a premium on online and mobile engagement, customer acquisitions, customisation, big data, fraud detection, artificial intelligence, machine learning, and cloud management”, adding that such activities require expertise and economies of scale that most banks do not have.

Education and innovation

Michael Sheehy, chief compliance officer at US financial services company Payoneer, suggests that an important way in which the new office may be able to help is through education and guidance. 

“Sound guidance around what is and isn’t OK under an OCC charter could enable banks to make more informed decisions about the risks and costs associated with going into new digital business lines,” says Mr Sheehy. “On the other side of the relationship, fintechs would hope to get clarity in terms of the standard requirements for partnering with an OCC-chartered bank.” 

He adds that it is too early to say whether the proposed office will succeed, but that there is great potential when it comes to bank-fintech partnerships. “We welcome any actions to support that. Innovation simply has to be at the heart of the approach. This work will be welcomed by the industry if pursued with a true bias to innovation and to in-depth understanding of new products and services and how risk is managed,” he says. 

He goes on to caution that “there is a danger that if old banking regulations are applied to new digital products, innovation will be stunted”.

When it comes to financial technology, innovation has been outpacing regulatory thinking for a decade, according to Arjun Jayaram, founder and CEO of post-trade processing fintech Baton Systems. He says that rule-makers are now looking to define specific lanes in which they want new innovations to take place, because as things stand, numerous entities are veering off in multiple directions. 

If the OCC seeks to keep an open mind it will be a win-win for banks, consumers and fintech companies

Michele Tucci

“To achieve specific milestones, more clarity still needs to come out of the Fed, OCC, Finra [Financial Industry Regulatory Authority], and Fincen [Financial Crimes Enforcement Network],” adds Mr Jayaram.

But he supports the creation of the new US office, calling it a necessary step in the right direction. “Regulators need to devise a clear and concise financial technology compliance charter between different regulatory stakeholders. Only then will there be clarity on what innovation looks like to these federal organisations and how the market will get there,” he says. “To meet their specific goals, all these bodies need to be aligned on a clear pathway to innovation.”

Experimental innovation, such as sandboxes, has been tried by numerous regulators but has so far achieved very little, he says. “Financial technology innovation is not about pet projects, it is about doing tangible work that’s actually deployed safely and securely with operational resiliency that makes a real difference to banks and payments companies – just as fintechs have been successfully doing for many years,” he says.

“Once organisations such as the OCC move in this direction, replicating the work in the private sector, they will begin shaping the technical developments.”

All about execution

Michele Tucci, chief strategy officer and MD Americas at data analytics platform Credolab, says the success of the OCC initiative will depend on execution and how it exercises oversight. Crucially, he says, it is unclear whether the creation of the new office is in the spirit of welcoming innovative solutions to be tested in a regulated environment, or if instead it will lead to more compliance processes and certifications.

“The right approach would be to learn from tech companies that use their best brains to solve real problems of the current status quo. Sometimes it's just process innovation and sometimes it's new, never-before-trusted data. Otherwise, it's a radical new way of doing something that hasn't been done before,” says Mr Tucci.

“If the OCC seeks to keep an open mind and update existing federal rules to welcome and incorporate innovation, it will be a win-win for banks, consumers and fintech companies alike,” he adds.

There are already successful examples of such regulatory oversight, says Mr Tucci. “Look at what the Monetary Authority of Singapore, the Financial Conduct Authority of the UK and the Hong Kong Monetary Authority are doing,” he adds. 

“The OCC does not need to reinvent the wheel but talk to their counterparts overseas and learn from the experience of fintech already working in the US. It should not be too difficult,” Mr Tucci concludes.

Was this article helpful?

Thank you for your feedback!

Read more about:  Americas , Digital journeys , Fintech , Americas , US