[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