Supporting Community Bank Innovation: ICBA’s Appeal to the OCC for Modern, Proportionate Fintech Regulation

At a glance

• ICBA’s Advocacy for Modernized Regulation: In a recent letter, the Independent Community Bankers of America (ICBA) urged the Office of the Comptroller of the Currency (OCC) to modernize regulatory oversight to support innovation and protect community banks in the digital financial ecosystem.
• Key Objectives: ICBA’s objectives include promoting community bank innovation, advocating for updated risk-based oversight, encouraging cost-effective infrastructure, supporting responsible fintech investment, increasing regulatory clarity, and demanding proportional regulation.
• Benefits for Community Banks: The proposed regulatory changes aim to lower barriers to innovation, level the competitive field, strengthen consumer offerings, and encourage sustainable growth for community banks.

The full story

The Independent Community Bankers of America (ICBA) wrote a letter to the Office of the Comptroller of the Currency (OCC) on May 2, 2025 urging the OCC to modernize regulatory oversight to better support innovation and protect the role of community banks in the digital financial ecosystem. As bank–fintech partnerships expand, the ICBA advocates for a regulatory framework that recognizes the benefits of these collaborations, addresses emerging risks, and ensures smaller institutions can compete on a level playing field. Their goal is to prevent regulatory overreach that could stifle innovation, harm consumers, and accelerate consolidation in the financial industry.

ICBA’s objectives with bank-fintech partnerships

The ICBA’s objectives are centered around preserving and promoting the role of community banks in the evolving financial landscape. By treating bank–fintech partnerships as valuable assets rather than threats, the ICBA aims to enhance financial inclusion and improve service delivery through competitive digital services. These collaborations enable community banks to offer modern amenities like mobile-first banking and early wage access, which can be challenging to develop independently. 

In advocating for updated, risk-based oversight, the ICBA identifies outdated third-party risk management rules as a barrier, urging the OCC to revise guidance to align with current fintech dynamics. They highlight the necessity of recognizing shared data ecosystems and embedded compliance features and advocate for expanded regulatory authority, particularly under the Bank Services Company Act, as a means to ensure comprehensive oversight. Moreover, the ICBA promotes the development of cost-effective infrastructure and shared standards, calling for open-source, cloud-based platforms and standardized frameworks, which would alleviate the compliance burdens on small banks. They also underscore the importance of responsible fintech investment, emphasizing the need for clear guidelines to facilitate safe, transparent, and diversified investments in fintech venture funds. 

Increased regulatory clarity and coordination are pivotal, as ambiguous rules from multiple agencies can stifle innovation and deter smaller banks. The ICBA calls for more consistent guidance and improved interagency coordination to create a streamlined regulatory environment that enables community banks to engage in risk-based innovation without facing unwarranted regulatory obstacles. 

The ICBA’s priorities can be grouped into the following six areas.

1. Preserve and promote community bank innovation
ICBA wants regulators to treat bank–fintech partnerships as valuable tools for expanding financial inclusion and improving service delivery—not as systemic threats. It argues that these partnerships help community banks offer competitive digital services, such as mobile-first banking and early wage access, that they would otherwise struggle to develop independently.

2. Advocate for updated, risk-based oversight
Current third-party risk management (TPRM) rules are outdated and misaligned with the realities of modern fintech relationships. ICBA recommends that the OCC update its guidance to account for shared data ecosystems and embedded compliance features and expand regulatory authority where necessary—especially under the Bank Services Company Act (BSCA).

3. Promote cost-effective infrastructure and shared standards
Community banks need affordable, modern technology solutions. ICBA is asking the OCC to encourage the development and adoption of open-source and cloud-based banking platforms, as well as to support the creation of standardized due diligence and compliance frameworks to reduce burdens on small banks.

4. Support responsible fintech investment
ICBA supports community bank investment in fintech venture funds as a way to remain technologically relevant. They call for clear guidance to ensure these investments are safe, transparent, and appropriately diversified.

5. Increase regulatory clarity and coordination
Ambiguous or conflicting regulations from multiple agencies could create confusion and discourage smaller banks from engaging in innovation. ICBA urges the OCC to provide clearer, more consistent guidance through FAQs, no-action letters, and supervisory highlights, and to strengthen interagency coordination to streamline oversight.

6. Demand proportional regulation
ICBA stresses the need for a risk-based regulatory approach that differentiates between large, complex institutions and smaller community banks. One-size-fits-all rules could drive smaller players out of the innovation space, consolidating power among the largest banks and limiting consumer choice.

How fintech regulation helps community banks

Community banks benefit in numerous ways from regulatory advancements, not the least of which is an increased ability to innovate more freely without being bogged down by excessive compliance costs. By facilitating partnerships with fintech companies, community banks may be able to more easily introduce digital services to their clients, breaking down the traditional barriers to offering competitive, modern banking solutions in underserved or rural areas, for instance. 

This approach effectively levels the playing field, ensuring that community banks are not unduly disadvantaged by regulatory demands that may cater more to larger institutions. Consequently, these banks are then empowered to enhance their range of consumer offerings, providing local customers with access to cutting-edge financial products that address their unique needs. 

In summary, the ICBA’s recommendations helps community banks in four key ways:

• Lowers barriers to innovation by enabling smaller banks to adopt digital services through fintech partnerships without prohibitive compliance costs.
• Levels the competitive field by ensuring that regulatory expectations do not unfairly disadvantage community banks.
• Strengthens consumer offerings by allowing local institutions to deliver modern financial products to underserved and rural populations.
• Encourages sustainable growth by providing banks with safe pathways to invest in new technologies and delivery models.

The bottom line about bank-fintech partnerships and the ICBA’s letter

A clear message resonates from the Independent Community Bankers of America (ICBA) to the Office of the Comptroller of the Currency (OCC): it is essential that community banks are empowered, rather than burdened, as the financial system undergoes significant evolution. 

In an era where digital transformation is reshaping the landscape, a regulatory framework that is modern, proportionate, and innovation-friendly becomes imperative for these institutions. Such a framework not only ensures that smaller banks can compete effectively but also supports their ability to thrive and serve more consumers effectively. 

By safeguarding their capability to offer competitive digital financial services, community banks can continue to play a vital role in enhancing financial inclusion across the country. 

Have questions about how the ICBA’s letter and fintech regulation in general may impact your organization? Aprio is here to help. Schedule a consultation with our team today. 

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