[Federal Register Volume 65, Number 22 (Wednesday, February 2, 2000)]
[Proposed Rules]
[Pages 4895-4897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2199]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 65, No. 22 / Wednesday, February 2, 2000 / 
Proposed Rules  

[[Page 4895]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

[Docket No. 00-02]
RIN 1557-AB76


Electronic Banking

AGENCY:  Office of the Comptroller of the Currency, Treasury.

ACTION:  Advance notice of proposed rulemaking.

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SUMMARY:  The Office of the Comptroller of the Currency (OCC) is 
undertaking a review of its regulations with a view toward identifying 
changes or additions to its rules that would facilitate national banks' 
use of new technologies. This advance notice of proposed rulemaking 
(ANPR) solicits comment on a wide range of issues arising from national 
bank involvement in electronic activities.

DATES:  Comments must be received by April 3, 2000.

ADDRESSES:  Please send your comments to: Office of the Comptroller of 
the Currency, Communications Division, 250 E Street, SW, Washington, DC 
20219, Attention: Docket No. 00-02. You may inspect and photocopy 
comments at the same location. In addition, you may fax your comments 
to (202) 874-5274 or electronic mail them to 
[email protected].

FOR FURTHER INFORMATION CONTACT:  Stuart Feldstein, Assistant Director, 
or Karl Betz, Attorney, Legislative and Regulatory Activities, at (202) 
874-5090; James Gillespie, Assistant Chief Counsel, at (202) 874-5200; 
or Clifford Wilke, Director, Bank Technology, at (202) 874-5920.

SUPPLEMENTARY INFORMATION:

Background

    Technological developments are dramatically altering the ways in 
which national banks conduct their business. Telecommunications 
advances offer banks faster and more efficient communication and data 
transmission. Improvements in computer hardware and software are 
opening up new banking applications. These 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.
    The explosive growth of the Internet also is prompting banks to 
reconsider business strategies and adopt alternative distribution and 
marketing systems. The recent chartering of Internet-only banks that 
operate without a conventional brick and mortar physical presence and 
the use of the Internet by existing banks to establish transactional 
World Wide Web (Web) sites \1\ present new opportunities and challenges 
for national banks.
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    \1\ As of mid-September 1999, 541 national banks had 
transactional Web sites.
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    The OCC has already taken a number of steps to facilitate national 
banks' use of developing technology, including the Internet. For 
example, in 1996, we revised our data processing regulation to reflect 
the fact that banks today use technology to engage in a range of 
electronic activities. 61 FR 4849 (Feb. 9, 1996). As revised, the 
regulation authorizes national banks to conduct through electronic 
means or facilities any activity that they are otherwise authorized to 
conduct and permits banks to sell excess electronic capacities acquired 
or developed in good faith for banking purposes. 12 CFR 7.1019.
    The OCC has also recently issued a comprehensive handbook that 
addresses the risks presented by Internet banking activities. 
Comptroller's Handbook, Other Income Producing Activities, Internet 
Banking (Oct. 1999) (Handbook).\2\ The Handbook describes procedures 
for examining Internet banking activities in national banks. It also 
provides guidance to national banks that are conducting, or 
considering, Internet banking activities by outlining business and 
technical issues associated with offering banking products and services 
through the Internet. The Handbook follows previous OCC guidance on 
electronic banking issues, including certification authority systems, 
technology risk management, retail personal computer banking, Web 
privacy statements, cyber-terrorism, reporting computer-related crime, 
and consumer compliance.\3\
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    \2\ This Handbook and others in the Comptroller's Handbook 
series are available on the OCC's Web site at www.occ.treas.gov.
    \3\ OCC Advisory Letter No. 97-9, ``Reporting Computer-Related 
Crimes'' (Nov. 19, 1997); OCC Advisory Letter No. 99-6, ``Guidance 
to National Banks on Web Site Privacy Statements'' (May 4, 1999); 
OCC Bulletin 98-3, ``Technology Risk Management'' (Feb. 4, 1998); 
OCC Bulletin 98-31, ``Guidance on Electronic Financial Services and 
Consumer Compliance'' (July 30, 1998); OCC Bulletin 98-38, 
``Technology Risk Management: PC Banking'' (Aug. 24, 1998); OCC 
Bulletin 99-9, ``Infrastructure Threats from Cyber-Terrorists'' 
(Mar. 5, 1999); OCC Bulletin 99-20, ``Certification Authority 
Systems'' (May 6, 1999). All of these issuances are available on the 
OCC's Web site at www.occ.treas.gov.
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    In addition, on a case-by-case basis, the OCC reviews specific bank 
uses of technology. To date, we have approved a number of Internet 
applications, including transactional Web sites, commercial Web site 
hosting services, a virtual mall, an electronic marketplace for non-
financial products, and Internet access services.\4\ The OCC also has

[[Page 4896]]

permitted national banks to engage in a number of electronic payment 
systems activities. For example, we have allowed national banks to 
provide electronic bill payment and presentment services, stored value 
systems, electronic data interchange (EDI) services, and to dispense 
prepaid alternate media (such as stamps and prepaid phone cards) from 
automated teller machines (ATMs).\5\ Finally, the OCC has authorized 
national banks to offer additional technology-based services, such as 
digital certification authority services and electronic correspondent 
banking services.\6\
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    \4\ OCC Interpretive Letter No. 742, [1996-1997 Transfer Binder] 
Fed. Banking L. Rep. (CCH) para. 81-106 (Aug. 19, 1996) (allowing a 
national bank to offer Internet banking services); OCC Conditional 
Approval No. 253 (Aug. 20, 1997) (chartering a national bank to 
deliver products and services to customers primarily through 
electronic means); Interpretive Letter No. 856, [1998-1999 Transfer 
Binder] Fed. Banking L. Rep. (CCH) para. 81-313 (Mar. 5, 1999) 
(permitting a national bank to host commercially enabled Web sites 
for small retailers); Interpretive Letter No. 875 (Oct. 31, 1999) 
(to be published in the January 2000 issue of ``Interpretations and 
Actions'') (opining that a national bank may offer a bank-hosted set 
of Web pages with a collection of links to third party Web sites 
organized according to product type so that bank customers can shop 
for a range of financial and non-financial products and services via 
these links to third party vendors); OCC Corporate Decision No. 99-
35 (Oct. 20, 1999) (permitting a national bank operating subsidiary 
to provide links to merchant processing-related third party vendors 
on its Internet site); OCC Corporate Decision No. 97-60 (July 1, 
1997) (authorizing a national bank to operate a Web site providing 
consumers and dealers with detailed information on used cars offered 
by third party sellers that meet purchaser preferences); OCC 
Interpretive Letter No. 742, [1996-1997 Transfer Binder] Fed. 
Banking L. Rep. (CCH) para. 81-106 (Aug. 19, 1996) (permitting a 
national bank to provide full Internet access service in connection 
with its Internet banking services and, incidental to that, the 
national bank may sell good faith excess capacity in access service 
to persons who are not Internet banking customers). In addition to 
being available through the Federal Banking Law Reporter (CCH), most 
of the OCC staff opinions and decisions cited in this ANPR are 
available on the OCC's Web site. The OCC published redacted versions 
of these letters and decisions in its monthly publication 
``Interpretations and Actions.'' Beginning with the May 1996 issue, 
the OCC's Web site provides electronic access to issues of 
``Interpretations and Actions.'' See www.occ.treas.gov.
    \5\ OCC Conditional Approval No. 304 (Mar. 5, 1999) (stating 
that electronic bill presentment is part of the business of 
banking); OCC Conditional Approval No. 332 (Oct. 18, 1999) (allowing 
national bank subsidiaries to invest in an electronic interbank 
switch to support electronic bill presentment services over the 
Internet); OCC Conditional Approval No. 220 (Dec. 2, 1996) 
(concluding that the creation, sale and redemption of electronic 
stored value in exchange for dollars is part of the business of 
banking); OCC Interpretive Letter No. 732, [1995-1996 Transfer 
Binder] Fed. Banking L. Rep. (CCH) para. 81-049 (May 10, 1996) 
(opining that EDI services are ``part of or incidental to business 
of banking''); OCC Interpretive Letter No. 718, [1995-1996 Transfer 
Binder] Fed. Banking L. Rep. (CCH) para. 81-033 (Mar. 14, 1996) 
(finding that a national bank may dispense alternate media, such as 
prepaid phone cards, public transportation system tickets, and 
promotional and advertising materials, from ATM machines).
    \6\ OCC Conditional Approval No. 267 (Jan. 12, 1998) (allowing a 
national bank to act as a certification authority to enable 
subscribers to generate digital signatures that verify the identity 
of a sender of an electronic message); OCC Conditional Approval No. 
339 (Nov. 16, 1999) (permitting national banks to invest in a 
multiple bank venture to establish an entity that will support a 
multiple bank certification authority system); OCC Interpretive 
Letter No. 754, [1996-1997 Transfer Binder] Fed. Banking L. Rep. 
(CCH) para.81-118 (Nov. 6, 1996) (approving a national bank 
operating subsidiary that sells computer network services and 
related hardware to other financial institutions as a correspondent 
banking service).
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    We periodically review and reevaluate our regulations to ensure 
that they encourage national banks' efficiency and competitiveness, 
consistent with safety and soundness. The purpose of this ANPR is to 
invite public comment on a wide range of issues involving national bank 
involvement in electronic banking to determine whether the OCC's 
regulations should be revised to remove regulatory impediments and 
unnecessary burdens, if any, to bank use of technology, or add new 
provisions that would facilitate national banks' use of new 
technologies. Based on the comments we receive, we may propose specific 
revisions to our rules for comment or issue additional supervisory 
guidance.\7\
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    \7\ Section 729 of the Gramm-Leach-Bliley Act (GLBA) requires 
the OCC and the other Federal banking agencies to conduct a study of 
banking regulations pertaining to the delivery of financial services 
and make recommendations on adapting existing regulations to on-line 
banking and lending. A report to Congress detailing these 
recommendations is due by November 12, 2001. Public Law 106-102, 
section 729, 113 Stat. 1338 (Nov. 12, 1999). The OCC will not delay 
making changes to its rules or supervisory policies during the 
pendency of the Sec. 729 study and report. Commenters' responses to 
this ANPR will, however, help the OCC formulate recommendations for 
legislative action or for actions that may appropriately be 
undertaken on an interagency basis.
    We also note that on November 29, 1999, President Clinton issued 
a memorandum for the heads of executive departments and agencies 
announcing an initiative to update laws and regulations developed 
before the advent of the Internet that may have unintended negative 
effects on electronic commerce. The memorandum asks each Federal 
agency to identify any provision of law administered by such agency, 
or any regulation issued by such agency, that may impose a barrier 
to electronic transactions, and to recommend how such laws or 
regulations may be modified to allow electronic commerce to proceed 
while ensuring that consumers and the general public continue to 
enjoy the same degree of protection that they do under current law. 
Memorandum on Facilitating the Growth of Electronic Commerce, Nov. 
29, 1999, 35 Weekly Comp. Pres. Doc. 2457-2458 (Dec. 6, 1999).
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Issues for Comment

    The following discussion identifies some areas where modification 
of the OCC's regulations or supervisory policies may be useful to 
national banks that provide financial services electronically. 
Commenters are invited to respond to the questions presented and to 
offer comments or suggestions on any other issues related to electronic 
banking that are not specifically mentioned here, including whether OCC 
initiatives other than regulatory changes are appropriate.\8\
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    \8\ Not within the scope of this ANPR are privacy issues, which 
are being addressed on an interagency basis pursuant to Title V of 
the GLBA, and issues concerning the Community Reinvestment Act.
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1. Electronic Banking in General: How Should the OCC Adapt its 
Regulations or Supervisory Policies To Facilitate National Banks' Use 
of Electronic Technology, Consistent With Safety and Soundness?

    Recognizing the fluid, fast-evolving nature of bank use of 
technology, the OCC wants to ensure that its regulations are flexible 
enough to address emerging trends and new banking activities. To this 
end, we invite commenters to describe how national banks want to use 
new technologies and how these technologies will impact the ways in 
which national banks operate under the OCC's current regulations. For 
example, are there specific regulations that the OCC should modify 
because they impede the use of developing technology?
    Technology also enables national banks to reach nationwide markets 
for the financial products and services they provide. Are there areas 
where conducting electronic banking activities could particularly 
benefit from a single set of standards that can be applied uniformly on 
a nationwide basis?
    Electronic banking activities of all forms expose banks to new 
combinations of risks from different sources. Through the issuance of 
the Internet Banking Handbook and other supervisory guidance, the OCC 
is working to identify, and educate national banks about, the risks 
presented by electronic banking and to ensure that its regulations 
appropriately address these risks. We invite comment on whether 
existing OCC regulations adequately address the risks presented by 
current or future electronic banking activities. Are there areas where 
banks would benefit from additional clarification in our rules or in 
other guidance on the risks associated with electronic banking 
activities? For example, are banks experiencing problems related to the 
permissibility, validity, and enforceability of electronic 
transactions? What could the OCC do to provide greater legal certainty 
in these or other areas?
    Electronic banking also provides consumers with more convenient 
access to a wider variety of financial services. Studies indicate that 
a significant percentage of households in the United States will do 
their banking online as a growing number of consumers conduct their 
banking and other financial transactions through automated teller 
machines and over the Internet. We invite comment on whether there are 
specific areas in which regulatory changes are needed to enhance 
consumer acceptance of, confidence in, or access to, electronic 
banking.

2. Adapting Existing Law to Electronic Banking: What Statutes That the 
OCC Administers Could Be Interpreted More Flexibly To Accommodate New 
Technologies?

    Internet banking raises legal issues with respect to how the OCC 
should construe references in existing law to the ``location'' of a 
national bank. A number of statutes applicable to national banks refer 
to the state or place where the bank is ``located'' or use similar 
terms. \9\ In some of these

[[Page 4897]]

statutes, the activities and operations of a national bank depend on 
the laws of the state in which the bank is located.
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    \9\ E.g., 12 U.S.C. 24 (Eighth) (charitable contributions), 29 
(real estate holding period), 72 (directors' residency requirement), 
75 (impact of legal holiday on shareholders' meeting), 85 (allowable 
interest rate), 90 (pledging security for deposits of state funds), 
92 (insurance sales), 92a (fiduciary powers), 95 (state-declared 
bank holidays), 182 (publication of notice of voluntary 
liquidation), 214a & 214c (national bank conversions and mergers 
into state banks) & 215a (national bank and state bank mergers into 
national banks); 28 U.S.C. 1348 (citizenship of state for federal 
court jurisdiction).
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    Generally, for many of these statutes, banks have been considered 
located in a state where they have a main office or a branch. For some 
statutes, only the main office is considered. For others, a bank has 
been considered located in a state with a non-branch office, as well as 
the states of its main office and branches. Moreover, the determination 
of the bank's location focuses on the location of the bank's offices 
and activities, not the location of the bank's customers.
    We invite comment on whether new developments in bank technology 
require the OCC to address how ``location'' applies in the context of 
activities conducted via the Internet. Specifically, is the 
determination of ``location'' for purposes of the statutes an 
impediment to national banks conducting all or part of their operations 
on the Internet? If so, should we further clarify our regulations on 
this issue? Is there a uniform approach to ``location'' that works for 
all the relevant statutes or should we address each statute separately?

3. Operational Issues: How Can the OCC Enhance the Operational 
Flexibility of Banks Engaging in Electronic Banking, Consistent With 
Safety and Soundness?

A. Marketing Access Arrangements
    The rapid growth of electronic commerce has resulted in many 
marketing arrangements involving providing bank customers with access 
to providers of retail or financial services through hypertext links on 
the bank's Web site. Under some marketing arrangements, the bank is the 
dominant brand and refers its customers to non-bank third parties for 
additional products and services not provided by the bank directly. In 
other cases, the non-bank is the dominant brand and it uses a bank to 
provide its customers with access to bank services while minimizing the 
bank's brand.
    It is well settled that a national bank may lease excess space on 
bank premises to other businesses and share space jointly with other 
businesses, subject to certain conditions. These conditions, which are 
currently set forth in the OCC's regulation governing the sharing of 
space and employees, are intended to minimize customer confusion about 
the nature of the products offered and promote the safe and sound 
operation of the bank. See 12 CFR 7.3001.
    We invite comment on whether the OCC should issue a regulation 
similar to Sec. 7.3001 that would apply to these types of electronic 
marketing arrangements. Commenters are specifically requested to 
address whether any or all of the supervisory conditions set forth in 
Sec. 7.3001(c) are relevant in the electronic banking context and 
whether other conditions intended to minimize customer confusion should 
apply to these arrangements.
B. Branching
    National banks may receive deposits and pay withdrawals in a 
variety of ways that are not subject to geographical restrictions or 
the need to apply for branch certification. For example, it is well 
settled that national banks may arrange to have their customers use 
ATMs established by third parties in order to undertake transactions 
with the bank. In 1996, Congress passed legislation permitting national 
banks to establish ATMs and remote service units (RSUs) without 
geographical limits or the need to seek approval to establish these 
types of facilities. \10\
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    \10\ The OCC recently defined an RSU as ``an automated facility, 
operated by a customer of a bank, that conducts banking functions, 
such as receiving deposits, paying withdrawals, or lending money.'' 
The term RSU includes ATMs, automated loan machines, and automated 
devices for receiving deposits, and may be equipped with a telephone 
or televideo device that allows contact with bank personnel. 64 FR 
60,092, 60,100 (Nov. 4, 1999) (adding 12 CFR 7.4003).
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    Both Congress, through legislation, and the OCC, through 
interpretation, also permit national banks to arrange for their 
customers to undertake banking transactions with the national bank 
through offices of affiliated banks and thrifts without implicating 
branching restrictions. Additionally, the OCC has established 
guidelines to enable national banks and their customers to transact 
business with each other through messenger services without implicating 
branching restrictions. Of course, national banks and their customers 
can transact business electronically without raising branching 
concerns.
    The OCC seeks comment on whether these forms of delivery systems 
are flexible enough to permit technology-based banks to serve the 
transaction-related needs of their retail, as well as their commercial, 
customers. Specifically, are existing regulations sufficient to permit 
customers of technology-based banks to make deposits in the bank by 
cash or check in an efficient and expeditious manner? Additionally, are 
there other types of transactions that banks are considering where 
geographical restrictions create impediments or that could benefit from 
the development of alternative delivery systems not within the scope of 
branching restrictions?

    Dated: January 21, 2000.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 00-2199 Filed 2-1-00; 8:45 am]
BILLING CODE 4810-33-P