Electronic Banking

AGENCY:

Office of the Comptroller of the Currency, Treasury.

ACTION:

Advance notice of proposed rulemaking.

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 regs.comments@occ.treas.gov.

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 present new opportunities and challenges for national banks.

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). 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.

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. The OCC also has 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). Finally, the OCC has authorized national banks to offer additional technology-based services, such as digital certification authority services and electronic correspondent banking services.

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.

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.

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. In some of these statutes, the activities and operations of a national bank depend on the laws of the state in which the bank is located.

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 § 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 § 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.

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?