Banking and financial markets have always been innovative. But globalization, new regulation, and changes in technology have heightened the pace of innovation dramatically.  According to a whitepaper published in March 2016 by the Office of the Comptroller of the Currency (OCC), while banks continue to innovate, "rapid and dramatic advances in financial technology are beginning to disrupt the way traditional banks do business."  In the face of this disruption, the OCC has used this white paper to enumerate eight "guiding principles" that the agency says it has formulated "to guide the development of its framework for understanding and evaluating innovative products, services, and processes that OCC-regulated banks may offer or perform." 

“Responsible Innovation"

A key theme of the paper is "responsible innovation:”  

"At the Office of the Comptroller of the Currency (OCC), we are making certain that institutions with federal charters have a regulatory framework that is receptive to responsible innovation along with the supervision that supports it."

And the authors assert that the paper's eight guiding principles will foster responsible innovation both among financial firms and responsible regulation among their regulators.  

1. Support Responsible Innovation. Create a centralized office on innovation; adopt less formal processes; allow banks to test or pilot new products and services.
2. Foster an Internal Culture Receptive to Responsible Innovation. Augment existing training to reinforce receptiveness; establish dedicated internal Web pages describing resources and training opportunities for staff.
3. Leverage Agency Experience and Expertise. Designate lead experts on responsible innovation; regularly evaluate the appropriate resources.
4. Encourage Responsible Innovation that Provides Fair Access to Financial Services and Fair Treatment of Consumers. Share success stories of innovations increasing access to underserved groups; issue guidance on expectations for innovations that serve low- to moderate income consumers
5. Further Safe and Sound Operations Through Effective Risk Management. Improve knowledge and identification of emerging risks; leverage the National Risk Committee’s current correspondence with banks.
6. Encourage Banks of All Sizes to Integrate Responsible Innovation Into Their Strategic Planning. Ensure decisions to offer innovative products are consistent with a bank’s long-term strategy.
7. Promote Ongoing Dialogue Through Formal Outreach. Hold OCC Forums and workshops; host “innovator fairs” for discussing Agency expectations; provide resources on OCC.gov and Banknet.gov.
8. Collaborate With Other Regulators. Establish channels of intragovernmental communication to help provide consistent administrative guidance and minimize unnecessary regulatory burden.

The OCC clearly understands the value of innovation in financial markets, and does not want to stand in the way of innovations that may be beneficial.  The task of managing the risks associated with new innovations, however, is not entirely the job of regulators.  The OCC places a great deal of responsibility on banks and financial institutions to pursue these innovations, understand and manages the associated risks, and ensure that they do not create potential harms to the financial system or bank customers.  

"Innovation is not free from risk, but when managed appropriately, risk should not impede progress. Indeed, effective risk management is essential to responsible innovation. Banks and regulators must strike the right balance between risk and innovation."

At an industry address on April 7, Comptroller of the Currency Thomas J. Curry said of the white paper, "We at the Office of the Comptroller of the Currency want to support efforts by federal banks to innovate, but we also want to be sure that they do so in a responsible way that doesn’t threaten the safety of the system or the financial well-being of bank customers." He added: "Banks engaged in responsible innovation need to strike the right balance between providing benefits to consumers and businesses with sound risk management."