[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
[Proposed Rules]
[Pages 40827-40831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13083]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 7 and 155
[Docket ID OCC-2019-0028]
RIN 1557-AE74
National Bank and Federal Savings Association Digital Activities
AGENCY: Office of the Comptroller of the Currency.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
interested in making sure it is aware of and understands the evolution
of financial services, so it ensures the federal banking system
continues to serve consumers, businesses, and communities effectively.
Further, national banks and Federal savings associations (banks) must
have a regulatory and supervisory framework that enables banks to adapt
to rapidly changing trends and technology developments in the financial
marketplace to meet customers' evolving needs while continuing to
operate in a safe and sound manner. The Office of the Comptroller of
the Currency (OCC) is reviewing its regulations on bank digital
activities to ensure that its regulations continue to evolve with
developments in the industry. This advance notice of proposed
rulemaking (ANPR) solicits public input as part of this review.
DATES: Comments must be received by August 3, 2020.
ADDRESSES: Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``National Bank and Federal Savings Association Digital Activities'' to
facilitate the organization and distribution of the comments. You may
submit comments by any of the following methods:
Federal eRulemaking Portal--Regulations.gov Classic or
Regulations.gov Beta: Regulations.gov Classic: Go to https://www.regulations.gov/. Enter ``Docket ID OCC-2019-0028'' in the Search
Box and
[[Page 40828]]
click ``Search.'' Click on ``Comment Now'' to submit public comments.
For help with submitting effective comments please click on ``View
Commenter's Checklist.'' Click on the ``Help'' tab on the
Regulations.gov home page to get information on using Regulations.gov,
including instructions for submitting public comments.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
``Visit New Regulations.gov Site'' from the Regulations.gov Classic
homepage. Enter ``Docket ID OCC-2019-0028'' in the Search Box and click
``Search.'' Public comments can be submitted via the ``Comment'' box
below the displayed document information or by clicking on the document
title and then clicking the ``Comment'' box on the top-left side of the
screen. For help with submitting effective comments please click on
``Commenter's Checklist.'' For assistance with the Regulations.gov Beta
site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-
Friday, 9 a.m.-5p.m. ET or email [email protected].
Email: [email protected].
Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2019-0028'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically--Regulations.gov Classic
or Regulations.gov Beta:
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
``Docket ID OCC-2019-0028'' in the Search box and click ``Search.''
Click on ``Open Docket Folder'' on the right side of the screen.
Comments and supporting materials can be viewed and filtered by
clicking on ``View all documents and comments in this docket'' and then
using the filtering tools on the left side of the screen. Click on the
``Help'' tab on the Regulations.gov home page to get information on
using Regulations.gov. The docket may be viewed after the close of the
comment period in the same manner as during the comment period.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
``Visit New Regulations.gov Site'' from the Regulations.gov Classic
homepage. Enter ``Docket ID OCC-2019-0028'' in the Search Box and click
``Search.'' Click on the ``Comments'' tab. Comments can be viewed and
filtered by clicking on the ``Sort By'' drop-down on the right side of
the screen or the ``Refine Results'' options on the left side of the
screen. Supporting materials can be viewed by clicking on the
``Documents'' tab and filtered by clicking on the ``Sort By'' drop-down
on the right side of the screen or the ``Refine Results'' options on
the left side of the screen.'' For assistance with the Regulations.gov
Beta site, please call (877) 378-5457 (toll free) or (703) 454-9859
Monday-Friday, 9 a.m.-5 p.m. ET or email
[email protected].
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.
Viewing Comments Personally: You may personally inspect
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For
security reasons, the OCC requires that visitors make an appointment to
inspect comments. You may do so by calling (202) 649-6700 or, for
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon
arrival, visitors will be required to present valid government-issued
photo identification and submit to security screening in order to
inspect comments.
FOR FURTHER INFORMATION CONTACT: Beth Knickerbocker, Chief Innovation
Officer, Office of Innovation, (202) 649-5200; Karen McSweeney, Special
Counsel; Jason Almonte, Special Counsel; Matthew Tynan, Counsel; or
Sarah Turney, Senior Attorney, Chief Counsel's Office, (202) 649-5490,
for persons who are deaf or hearing impaired, TTY, (202) 649-5597,
Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
I. Introduction
Over the past two decades, technological advances have transformed
the financial industry, including the channels through which products
and services are delivered and the nature of the products and services
themselves. Fewer than fifteen years ago, smart phones with slide-out
keyboards and limited touchscreen capability were newsworthy.\1\ Today,
49 percent of Americans bank on their phones,\2\ and 85 percent of
American millennials use mobile banking.\3\
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\1\ Charles Arthur, The history of smartphones: Timeline, The
Guardian (Jan. 24, 2012, 3:00 p.m.), https://www.theguardian.com/technology/2012/jan/24/smartphones-timeline.
\2\ Tech's raid on the banks; Banking and technology, The
Economist (May 4, 2019), https://link.gale.com/apps/doc/A584205036/AONE?u=wash94865&sid=AONE&xid=0023c2e4.
\3\ Irving Wladawsky-Berger, The Digital Revolution Comes for
Banking, The Wall Street Journal (June 28, 2019), https://blogs.wsj.com/cio/2019/06/28/the-digital-revolution-comes-for-banking/.
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The first person-to-person (P2P) platform for money transfer
services was established in 1998.\4\ Today, there are countless P2P
payment options, and many Americans regularly use P2P to transfer
funds.\5\ In 2003, Congress authorized digital copies of checks to be
made and electronically processed.\6\ Today, remote deposit capture is
the norm for many consumers.\7\ The first cryptocurrency was created in
2009; there are now over 1,000 rival cryptocurrencies,\8\ and
approximately eight percent of Americans own cryptocurrency.\9\ Today,
artificial intelligence (AI) and machine learning, biometrics, cloud
computing, big data and data analytics, and distributed ledger and
blockchain technology are
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used commonly or are emerging in the banking sector. Even the language
used to describe these innovations is evolving, with the term
``digital'' now commonly used to encompass electronic, mobile, and
other online activities.
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\4\ Elizabeth Judd, Timeline: 180 years of banking technology,
Independent Banker (Oct. 31, 2017), https://independentbanker.org/2017/10/timeline-180-years-of-banking-technology/.
\5\ Id. See also Tom Groenfeldt, Real-Time Person-to-Person
Payments Are On The Rise In The U.S. Forbes (Feb. 8, 2019, 7:00
p.m.), https://www.forbes.com/sites/tomgroenfeldt/2019/02/08/real-time-person-to-person-payments-are-on-the-rise-in-the-u-s-aite/#fcb030d609d0; Jill Cornfield, Instant payment apps grow up. They're
not just for millennials anymore, CNBC (July 14, 2018), https://www.cnbc.com/2018/07/12/instant-payment-is-growing-up-its-not-just-for-millennials-anymore.html.
\6\ Check Clearing for the 21st Century Act, Public Law 108-100,
117 Stat. 1177 (2003).
\7\ Colleen Morrison, Protect your bank from remote deposit
capture risks, Independent Banker (Sept. 1, 2019), https://independentbanker.org/2019/09/protect-your-bank-from-remote-deposit-capture-risks/.
\8\ Bernard Marr, A Short History of Bitcoin and Crypto Currency
Everyone Should Read, Forbes (Dec. 6, 2017, 12:28 a.m.), https://www.forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-currency-everyone-should-read/#328e28a63f27.
\9\ Annie Nova, Just 8 percent of Americans are invested in
cryptocurrencies, survey says, CNBC (March 16, 2018, 11:48 a.m.),
https://www.cnbc.com/2018/03/16/why-just-8-percent-of-americans-are-invested-in-cryptocurrencies-.html.
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These technological developments have led to a wide range of new
banking products and services delivered through innovative and more
efficient channels in response to evolving customer preferences. Back-
office banking operations have experienced significant changes as well.
AI and machine learning play an increasing role, for example, in fraud
identification, transaction monitoring, and loan underwriting and
monitoring. And technology is fueling advances in payments. In
addition, technological innovations are helping banks comply with the
complex regulatory framework and enhance cybersecurity to more
effectively protect bank and customer data and privacy. More and more
banks, of all sizes and types, are entering into relationships with
technology companies that enable banks and the technology companies to
establish new delivery channels and business practices and develop new
products to meet the needs of consumers, businesses, and communities.
These relationships facilitate banks' ability to reach new customers,
better serve existing customers, and take advantage of cost
efficiencies, which help them to remain competitive in a changing
industry.
Along with the opportunities presented by these technological
changes, there are new challenges and risks. Banks should adjust their
business models and practices to a new financial marketplace and
changing customer demands. Banks are in an environment where they
compete with non-bank entities that offer products and services that
historically have only been offered by banks, while ensuring that their
activities are consistent with the authority provided by a banking
charter and safe and sound banking practices. Banks also must comply
with applicable laws and regulations, including those focused on
consumer protection and Bank Secrecy Act/anti-money laundering (BSA/
AML) compliance. And, importantly, advanced persistent threats require
banks to pay constant and close attention to increasing cybersecurity
risks.
Notwithstanding these challenges, the Federal banking system is
well acquainted with and well positioned for change, which has been a
hallmark of this system since its inception. The OCC's support of
responsible innovation throughout its history has helped facilitate the
successful evolution of the industry. The OCC has long understood that
the banking business is not frozen in time and agrees with the
statement made over forty years ago by the U.S. Court of Appeals for
the Ninth Circuit: ``the powers of national banks must be construed so
as to permit the use of new ways of conducting the very old business of
banking.'' \10\ Accordingly, the OCC has sought 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 banking to evolve, while ensuring that safety and
soundness and the fair treatment of customers is preserved.
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\10\ M & M Leasing Corp. v. Seattle First Nat. Bank, 563 F.2d
1377, 1382 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978).
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II. Existing Regulatory Framework
For almost twenty years, OCC regulations have specifically
addressed national banks' digital activities. The agency initially
issued regulations in 1996 that addressed data processing
activities.\11\ In 2000, it published an ANPR seeking public comment on
how to revise its regulations to further facilitate national banks' use
of developing technology, noting that ``rapid developments in new
technologies are causing banks to reevaluate existing delivery channels
and business practices and to develop new products and services in
order to reach new customers, better serve existing customers, and take
advantage of cost efficiencies.'' \12\ The comments submitted in
response to that ANPR formed the basis of a final rule issued in 2002
and updated in 2008.\13\ Today, these regulations, at 12 CFR part 7,
subpart E, address (1) electronic activities that are part of or
incidental to the business of banking; \14\ (2) furnishing of products
and services by electronic means and facilities; (3) engaging in an
electronic activity that is comprised of several component activities
(composite authority); (4) the sale of excess electronic capacity and
by-products; (5) acting as digital certification authority; (6) data
processing; (7) correspondent services; (8) the location of a national
bank conducting electronic activities; (9) the location under 12 U.S.C.
85 of national banks operating exclusively through the internet; and
(10) shared electronic space. Separate regulations at 12 CFR part 155
address (1) Federal savings associations' use of electronic means and
facilities generally and (2) requirements for Federal savings
associations using electronic means and facilities. The regulations in
part 155 were initially issued in 1998 and substantively updated in
2001 and again in 2017.\15\
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\11\ 61 FR 4849 (Feb. 9, 1996).
\12\ 65 FR 4895 (Feb. 2, 2000).
\13\ 67 FR 34992 (May 17, 2002) and 73 FR 22216 (Apr. 24, 2008).
\14\ This provision, at 12 CFR 7.5001, identifies the criteria
that the OCC uses to determine whether an electronic activity is
authorized for national banks as part of, or incidental to, the
business of banking under 12 U.S.C. 24(Seventh) or other statutory
authority. While this section details those criteria in the context
of electronic activities, the OCC uses the criteria to determine
whether any activity is part of or incidental to the business of
banking. To confirm the broader applicability of the criteria listed
in Sec. 7.5001, the OCC is proposing in a separate rulemaking to
remove the word ``electronic'' from this section and move it to part
7, subpart A, as new Sec. 7.1027. These proposed changes would
better organize OCC rules and clarify that the criteria of this
section may apply to any potential national bank activity, not just
those that are electronic in nature. There would be no substantive
effect as a result of this change.
\15\ 63 FR 65673 (Nov. 30, 1998), 66 FR 12993 (Mar. 2, 2001),
and 82 FR 8082 (Jan 23, 2017).
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Over this same period, the OCC has responded on a case-by-case
basis to industry requests for approval to engage in innovative,
technology-driven banking activities. Such approvals in the 1990s
covered internet applications (e.g., transactional websites, commercial
website hosting services, a virtual mall, an electronic marketplace for
non-financial products, and internet access services), electronic
payment systems activities (e.g., electronic bill payment and
presentment services, stored value systems, electronic data interchange
services, and prepaid alternate media such as stamps and prepaid phone
cards), and other technology-based services (e.g., digital
certification authority services and electronic correspondent banking
services).\16\ More recently, the OCC issued a preliminary conditional
approval for a full-service national bank with a nationwide footprint
that proposes to offer banking products through mobile, online, and
phone-based banking channels.\17\ The OCC also approved a request for
confirmation that a national bank may participate as a funding
participant in a real-time payment system for small dollar, irrevocable
payment services.\18\
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\16\ Specific citations for these approvals are in OCC's 2000
ANPR. See supra note 12, at 4895-96, fns. 4-6.
\17\ Conditional Approval No. 1205 (Aug. 31, 2018).
\18\ Interpretive Letter No. 1157 (Nov. 12, 2017).
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In 2015, the OCC launched an initiative to better understand the
role of innovation in financial services and to determine what actions
the agency could take in response to this dynamic environment. The OCC
subsequently implemented a ``responsible innovation'' framework
designed to
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ensure that national banks and Federal savings associations have a
regulatory structure that is receptive to innovation and that the
agency's supervisory approach appropriately accounts for the
opportunities and risks of changing business models and new products,
services, and processes.\19\
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\19\ OCC, Recommendations and Decisions for Implementing a
Responsible Innovation Framework (2016), https://www.occ.treas.gov/topics/supervision-and-examination/responsible-innovation/comments/recommendations-decisions-for-implementing-a-responsible-innovation-framework.pdf.
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The OCC also established a dedicated Office of Innovation that
serves as a central point of contact for interested parties and a
clearinghouse for innovation-related matters. This Office works to
increase OCC awareness and understanding of industry trends and issues,
such as the use of AI and machine learning, payment developments, the
evolution of lending, and relationships between banks and technology
companies. The Office of Innovation also assists both OCC-supervised
banks and nonbanks with understanding the agency's expectations
regarding safe and sound operations, fair access to financial services,
and fair treatment of customers.
III. Regulatory Review
As part of its on-going efforts to remain responsive to the
evolution of the Federal banking system, the OCC is undertaking a
comprehensive review of 12 CFR part 7, subpart E, and part 155.\20\ The
goals of this review are to evaluate whether these 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.
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\20\ As a companion to this ANPR, the OCC is separately issuing
a Notice of Proposed Rulemaking, published elsewhere in this issue
of the Federal Register as a separate document, that proposes
amendments to subparts A through D of Part 7 that would clarify and
codify recent OCC interpretations, integrate certain regulations for
national banks and Federal savings associations, and update or
eliminate outdated regulatory requirements that no longer reflect
the modern financial system.
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As part of this review, the OCC invites the public, including
members of the financial service and technology sectors and consumer
groups, to share their experiences and ideas. Based on the comments
received, the OCC may propose specific revisions to its rules, on which
it would again seek public comment. It should be noted that certain
principles guide the OCC's approach to its regulatory framework in the
context of technology and innovation. First, any regulation adopted
should be technology-neutral, so that products, services, and processes
can evolve regardless of the changes in technology that enables them.
Second, any regulation should facilitate appropriate levels of consumer
protection and privacy, including features that ensure transparency and
informed consent. Finally, regulations on digital activities should be
principle-based, rather than prescriptive, to enable effective
management of evolving risks and to reduce the potential that the
regulations quickly become outdated.
IV. Issues for Comment
The public is invited to respond to the following questions and
offer comments or suggestions on any other banking issues related to
digital activities, use of technology, or innovation. The OCC is not
seeking comment on its authority to issue a special purpose national
bank charter.
1. Considering the financial industry's evolution, are the OCC's
legal standards in part 7, subpart E, and part 155 sufficiently
flexible and clear? Should the standards be revised to better reflect
developments in the broader financial services industry? If so, how?
2. Do any of the legal standards in part 7, subpart E, or part 155
create unnecessary hurdles or burdens to the use of technological
advances or innovation in banking?
3. Are there digital banking activities or issues related to
digital banking activities that the OCC does not address in part 7,
subpart E, or part 155 that the OCC should address? If so, what are
these activities or issues, and why and how should the OCC address
them?
a. Are there digital finders' activities (i.e., activities that
bring together buyers and sellers of financial and nonfinancial
products and services) in which financial services companies engage or
banks wish to engage that are not included or sufficiently addressed 12
CFR part 7, subpart E, or part 155? If so, what are they?
b. Is there software that a bank produces, markets, or sells (or
wishes to produce, market, or sell) that is not within the current
scope of, or sufficiently addressed in, 12 CFR part 7, subpart E, or
part 155? If so, what type of software?
c. Does the term ``software,'' as used in 12 CFR 7.5006, exclude a
similar product or service that should be included in this section? If
so, what is the similar product or service, and why should it be
included?
d. Are there digital activities that banks offer, or wish to offer,
as correspondent services to its affiliates or other financial
institutions that are not included or sufficiently addressed in 12 CFR
part 7, subpart E, or in part 155? If so, what are they?
4. What types of activities related to cryptocurrencies or
cryptoassets are financial services companies or bank customers
engaged? To what extent does customer engagement in crypto-related
activities impact banks and the banking industry? What are the barriers
or obstacles, if any, to further adoption of crypto-related activities
in the banking industry? Are there specific activities that should be
addressed in regulatory guidance, including regulations?
5. How is distributed ledger technology used, or potentially used,
in banking activities (e.g., identity verification, credit underwriting
or monitoring, payments processing, trade finance, and records
management)? Are there specific matters on this topic that should be
clarified in regulatory guidance, including regulations?
6. How are AI techniques, including machine learning, used or
potentially used in activities related to banking (e.g., credit
underwriting or monitoring, transaction monitoring, anti-money
laundering or fraud detection, customer identification and due
diligence processes, trading and hedging activities, forecasting, and
marketing)? Are there ways the banking industry could be, but is not,
using AI because of issues such as regulatory complexity, lack of
transparency, audit and audit trail complexities, or other regulatory
barriers? Are there specific ways these issues could be addressed by
the OCC? Should the OCC provide regulatory guidance on this use,
including by issuing regulations?
7. 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? How are new payments
technologies and processes facilitated or hindered by existing
regulatory frameworks?
8. What new or innovative tools do financial services companies use
to comply with applicable regulations and supervisory expectations
(i.e., ``regtech'')? How does the OCC's regulatory approach enable or
hinder advancements in this area?
9. Are there issues unique to smaller institutions regarding the
use and implementation of innovative products, services, or processes
that the OCC should consider?
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10. What other changes to the development and delivery of banking
products and services for consumers, businesses and communities should
the OCC be aware of and consider?
11. Are there issues the OCC should consider in light of changes in
the banking system that have occurred in response to the COVID-19
pandemic, such as social distancing?
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020-13083 Filed 7-6-20; 8:45 am]
BILLING CODE 4810-33-P