Jun 25, 2020
The OCC is planning to unveil what Acting Comptroller Brian Brooks called “payments charter 1.0” as soon as this fall, Brooks said on the latest episode of the ABA Banking Journal Podcast, sponsored by Jack Henry. Version 1.0 would be a “national version of a state money transmission license” offering nonbank payment providers a “national platform with preemption,” but not access to the Federal Reserve’s payments system. After about 18 months of operating under version 1.0, Brooks said, the agency would roll out version 2.0, which he anticipates would include direct Fed access.
In recent interviews, Brooks has touted the idea of using the OCC’s authority to grant special-purpose national bank charters to charter payments companies. In the ABA Banking Journal podcast, Brooks provided more details about the financial inclusion requirements these charters would entail to provide consistency across depository and non-depository institutions.
“What we have to do is be creative about the way that we measure the benefit created by our charter, and what is the rational, intelligent, but not overly burdensome concomitant benefit we’d expect them to plow back into their communities,” Brooks said. “Rest assured, these charters will have some kind of financial inclusion expectation.”
Noting that banks have faced challenges adopting artificial intelligence and machine learning technologies in part because “regulators have been slow to provide guidance,” Brooks also said the OCC is working to evaluate advanced technologies that can improve financial inclusion such as AI-based underwriting.
As part of the agency’s financial inclusion efforts, the OCC’s Office of Innovation is “in the process of standing up an evaluation unit, where for the first time the OCC will analyze specific technologies, look at risk frameworks, engage in model validation and give banks guidance about what we think is good and what we think is risky. We’ve never done that before.”
The goal is to be “very specific,” Brooks added. “I’m not talking about generic guidance about managing safety and soundness and reputational risk. I’m talking about ‘What do we think about AI for credit underwriting?’ or ‘What are the fair lending and legal implications of AI in underwriting under various conditions?’ It won’t be useful if we’re not that specific.”
In addition to the topics mentioned above, Brooks described several other elements of his OCC innovation agenda:
- Changing credit bid rules for real estate owned to incentivize homeownership and renovation in distressed neighborhoods.
- The need to update vendor risk management rules to support innovation.
- The role of core processors in supporting bank innovation in a time of technological unbundling in the fintech marketplace.
Beyond appearing on the podcast, Brooks will be a keynote speaker at ABA’s Risk and Compliance Virtual Conference, July 28-30.