Responsible Innovation

November 2018

• Technology and evolving consumer preferences are driving change

within the financial services industry at an unprecedented pace

• Emergence of a significant number of nonbank companies that are

providing services traditionally only offered by banks

• Changes provide promise for promoting economic growth, financial

inclusion and greater efficiency for banks, but also may challenge

traditional banking models

• OCC wants to ensure that banks, particularly community banks,

remain a vibrant and relevant part of the financial services landscape

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Why is the OCC focused on Innovation?

Responsible Innovation is the use of new or improved financial products,

services, and processes to meet the evolving needs of consumers, businesses,

and communities in a manner that is consistent with sound risk management and

is aligned with the bank’s overall business strategy.

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Responsible Innovation Framework

Outreach & Technical Assistance

Awareness & Training

Coordination & Facilitation

Research

Interagency Collaboration

Responsible Innovation Framework

• Serves as a central point of contact and clearinghouse to facilitate

responses to inquiries and requests on innovation-related matters

• Enhances the OCC’s ability to identify, understand, and respond to

emerging trends and related risks in the financial services industry

• Provides an open forum to discuss regulatory principles, processes,

and expectations

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The OCC’s Office of Innovation

Financial Services

Industry

Office of

Innovation

Examiners and

Other OCC

Business Units

Our Priorities and Initiatives

• Training and Awareness of OCC Employees

• Outreach and Technical Assistance to Banks and Fintechs

• Enhancing Understanding of Bank/NonBank Relationships

• Continued Focus on Emerging Trends

• Ongoing Interagency Collaboration

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Why should you care?

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Hot Areas of Innovation

Digitalization

Artificial

Intelligence

Cloud

Computing

• Network model for a shared pool of computing resources

• Rapidly provisioned and scalable

• May reduce costs, improve user experience

• Emulation of human intelligence in machines

• Use cases include BSA/AML, underwriting, chatbots

• Facilitates more informed, data-driven decision making

• Use of digital technologies to change a business model

• May provide new revenue and cost saving opportunities

• Meets changing consumer preferences

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Back to the Definition

Responsible Innovation is the use of new or improved financial

products, services, and processes

to meet the evolving needs of consumers,

businesses, and communities

in a manner that is consistent with

sound risk management

and is aligned with the bank’s overall

business strategy.

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Aligning responsible innovation

• Business model

• Customers, target markets, and delivery channels

• Risk appetite and risk controls

• IT infrastructure

• Culture

• Board composition

• Partnerships and third-party

risk management

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Some Initial Considerations

• Increase in Partnerships

Vendors

White labeling

Referrals

Bank sponsorships

Incubators and accelerators

Bank consortiums and utilities

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Types of Bank-Fintech Partnerships

• Due Diligence

– Fintech firms may not have intimate knowledge of banking industry

– Incubators and accelerators

– Trade association involvement

• Ongoing Monitoring

– Fintech compliance skillsets and resources

– Bank’s ability and resources to monitor the relationship

• Culture

– Differing cultures can be difficult to manage

– Anticipating potential mismatches

• Exit Strategies

– Contracts include steps to dissolve the relationship and may consider Plan B

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Partnership Takeaways

Q: Is there specific risk management guidance around FinTech?

A: Existing guidance around topics like Third Party Risk Management,

New Product and Service Development, Cybersecurity, and Model Risk

Management cover many of the fundamentals. The Office of Innovation

is also available to provide technical assistance.

Q: What should we be doing as a midsized or community bank

with respect to innovation?

A: If you have not done so already, we would encourage banks to

consider incorporating innovation into your strategy.

Q: When should we reach out to the Office of Innovation?

A: We can help when you are considering partnering with a FinTech or

offering an innovative product or service or if you have questions on

innovation topics or emerging industry trends.

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FAQs from Banks

• Third Party Risk Management– OCC Bulletin 2017-21 (Frequently Asked Questions)

– OCC Bulletin 2013-29 (Third Party Relationships – Risk Management Guidance)

• New Product and Service Development– OCC Bulletin 2017-43 (New, Modified, or Expanded Bank Products and

Services – Risk Management Principles)

– OCC Bulletin 2018-14 (Core Lending Principles for Short-Term, Small-Dollar Installment Lending)

• Cybersecurity – OCC Bulletin 2015-31 (FFIEC Cybersecurity Assessment Tool)

• Model Risk Management– OCC Bulletin 2011-12 (Sound Practices for Model Risk Management)

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Key Regulatory Considerations

When should I

contact the

Office of

Innovation?

How can I contact

the Office of

Innovation?

How can the

Office of

Innovation help

me?

• Questions about partnering with a fintech

• Considering offering an innovative product or service

• Questions on innovation topics or emerging industry trends

• Banks may contact their local supervisory office

• Go to the Responsible Innovation webpage on occ.gov

• E-mail directly at innovation@occ.treas.gov

• Provide candid information on financial services innovation

• Assist in understanding issues to consider

• Provide success stories and lessons learned

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Engaging with the Office of Innovation

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• Office Hours

– Expanded locations including Chicago, Denver, and Dallas

• Listening Sessions

– Inaugural event in Chicago in March

• Participation in OCC Outreach

– Bankers Roundtables

– Director Workshops

• Bank Visits

Other Opportunities for Engagement

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Contacting the Office of Innovation

innovation@occ.treas.gov

202.649.5200

occ.gov/innovation

Beth Knickerbocker

Chief Innovation Officer

Washington, DC

Emily Doran

Innovation Officer

Washington, DC

Marcey Hoelting

Innovation Officer

Washington, DC

Matthew Fifield

Innovation Officer

New York, NY

Joshua Preston

Innovation Officer

San Francisco, CA