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OCC proposes Innovative Pilot Program

Fintech Federal Issues OCC Regulatory Sandbox Of Interest to Non-US Persons

Fintech

On April 30, the OCC released a proposed Innovative Pilot Program (and accompanying program FAQs), which is designed to support responsible innovation in the U.S. federal banking system by allowing eligible entities to test novel products, services, or processes that could present significant benefits to consumers, businesses, financial institutions, and communities. Under the program, the OCC would provide eligible entities with regulatory input, through tools such as interpretive letters during the development and implementation of proposed innovative activities. Any proposal the agency determines to have potentially predatory, unfair, or deceptive features; poses undue risk to consumers; or poses undue safety and soundness risk to an institution would be deemed as inconsistent with existing law and policy and not permitted in the program. Highlights of the proposed program include:

  • Eligibility. OCC-supervised financial institutions may participate in the program independently or when partnered with a third-party entity to offer an innovative activity. Third-party entities, not supervised by the OCC, may not independently participate. Additionally, eligible entities seeking to participate in the program must establish an uncertainty (“perceived to be a barrier to development and implementation”) that justifies the need for the OCC’s involvement during development or implementation of the innovative product or service and must also show how the innovative activity has the potential to benefit the needs of consumers, businesses, and or communities.
  • Parameters. The OCC anticipates participation in the program to last between three and 24 months, but the duration of each pilot will be on a case-by-case basis. The program may include the use of interpretive letters, supervisory feedback, and technical assistance, as well as potential determinations of legal permissibility before a live test. Notably, the program will not provide any statutory or regulatory waivers, and all participants must continue to comply with applicable laws and regulations.
  • Evaluation Process. The four-step application process includes (i) a preliminary discussion with the OCC about the proposed pilot; (ii) submission of a tailored expression of interest (EOI) to the OCC’s Office of Innovation or assigned supervisory office; (iii) evaluation of the EOI by the OCC; and (iv) acceptance or declination of the request. If a proposal is accepted, the testing phase will begin and the entity will be required to submit periodic information and reports, including key performance indicators, issues identified, and any steps taken to address the issues.

The OCC will maintain the confidentiality of proprietary information, including the identity of any participating entities. Comments on the proposal must be submitted by June 14.

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