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Compliance and Security Draw Concerns for Banks

Bank BHThe Office of the Comptroller of the Currency (OCC) released its Semiannual Risk Perspective for Fall 2016 [1], which analyzes pertinent data and industry trends using four key components: the operating environment, bank performance, trends in key risks, and regulatory actions. The biannual report focuses on issues that pose threats to the safety and soundness of those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners, and the public, according to the OCC.

As the market grows, strategic risk is at an all-time high and financial institutions are moving carefully in order to protect their assets. Strategic risk remains a fundamental element to the financial industry, as banks are transforming their current business landscapes and face challenges in while increasing revenue. Contingency planning remains an integral component of security as banks adopt innovative products, services, and systems in response to the evolving environment for financial institutions and the introduction of new competitors, such as out-of-market banks and financial technology firms.

“Strategic risk remains a key risk for banks of all sizes,” Comptroller of the Currency Thomas Curry said. “Banks are adopting more innovative products, services, and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and financial technology firms.  In addition, some banks are considering business model changes, including mergers and acquisitions, as they search for acceptable returns in a prolonged environment of low interest rates. And, in some cases, banks face issues with succession and long-term planning.”

The report also discussed the growing need for compliance constraints in a high-risk environment. Compliance risk remains high as banks continue to manage money laundering risks subject to resource constraints in an increasingly complex risk environment and implement changes to policies and procedures to comply with amended consumer protection requirements, according to the report. The Bank Secrecy Act and Anti-Money Laundering (BSA/AML) are in need of high security, and due to technology and innovation, tight regulations need to be put in place in order to maintain the level of expertise needed to successfully implement security controls.

“Compliance must receive the same focus as safety and soundness for a bank to succeed, which is why last year we created a new executive-level department dedicated to compliance policy and supervision,” Curry said. “By focusing OCC resources on compliance, we send a clear message of the importance of compliance and ensure issues are addressed appropriately in each exam to ensure fair access and fair treatment of consumers and compliance with other applicable laws and regulations like BSA.”

The report also touched on the OCC’s Large Bank Supervision and Midsize and Community Bank Supervision operating units, which examines governance and operational risk issues for large banks and strategic, credit, and compliance for midsize and community banks.

Concerns surrounding large bank supervision consisted of compliance risk management, corporate governance weaknesses, cybersecurity and fraud, and enterprise risk management governance of third-party risk management practices.

Topics of discussion regarding midsize and community banks were also based around cybersecurity and governance risk, along with consumer compliance risk, the loosening of commercial and retail credit underwriting regulation standards, adaptation to business models in response to the current market, increased CRE concentrations, and BSA/AML compliance.

To view the full report, click here [1].