On October 15th, 2021, the Office of Comptroller of the Currency (OCC) released its bank supervision operating plan for fiscal year (FY) 2022. The plan provides the foundation for policy initiatives and supervisory strategies for national banks, Federal savings associations, federal branches, federal agencies, and technology service providers. The OCC Committee on Bank Supervision (CBS) sets forth the agency’s supervision priorities and objectives. While the objectives and priorities are similar for the Large Bank Supervision and Midsize and Community Bank Supervision, CBS managers will differentiate bank size, complexity and risk profile when developing individual bank supervisory strategies, and CBS operating plans could include resources and support for risk focused examinations of technology, and service providers who provide critical processing and services to financial institutions.
What this means
For FY 2022, supervision will focus on the impacts of the pandemic and resulting economic, financial, operational and compliance implications. In addition to the baseline supervision, the OCC will focus on the safety and soundness of strategic and operational planning, including –
- Guarding against complacency – examiners may focus on strategic and operational planning to ensure banks maintain stable financial positions, and could assess management and board understanding of the impact of new activities on the institutions’ financial performance and risk profile
- Credit – examiners may evaluate banks’ actions to manage credit risk given changes in market conditions, and supervisory focus could include portfolios impacted by the pandemic
- Allowance for Loan/Lease losses and Credit losses – institutions were required to adopt Current Expected Credit Losses (CECL) by the Securities & Exchange Commission (SEC) in 2020, but can delay until 2022. Therefore, examiners will evaluate preparedness for banks that have not adopted CECL, including implementation plans, loss estimation methodology and management information systems and technology
- Cybersecurity – operational risk, resilience, incident response, and data recovery and business continuity should be a supervisory focus. Examiners should assess internal controls and operational processes impacted by the pandemic
- Third Party Risk – examiners should assess whether banks are providing adequate oversight of their third party relationships, and identify where those relationships are critical to bank operations and whether they may impact resiliency
- Bank Secrecy, Consumer Compliance and Fair Lending –
- examiners may continue to focus on BSA/AML compliance evaluating technology and modeling solutions to perform and enhance BSA/AML oversight functions. Bank change management plans will also be evaluated for changes required to implement the Anti-Money Laundering Act of 2020.
- compliance management systems will continue to be a focus including third party risk, together with a consideration of higher risk products and how compliance programs are implemented
- fair lending processes could be assessed based on a banks fair lending risk profile and the annual Home Mortgage Disclosure Act data screening process
- OCC Bulletin 2020 -99 “Community Reinvestment Act” provides updated guidance and examiners should be familiar with this set of policies and procedures. Examiners may plan on additional training on any rule changes and incorporate any new CRA policy issued during FY 2022
- Interest Rate Risk – examiners should assess the impact of the current low rate environment on banks strategies, risk exposures and funding stability
- London Interbank Offered Rate (LIBOR) – examiners should evaluate banks implementation and execution of alternative reference rates given the December 30th, 2021 cessation of LIBOR. Banks should fully understand their exposures and have almost completed their remediation plans
- Payments – examiners should evaluate payment system products and technology that banks offer or plan to offer, and consider potential risks, including operational, compliance, credit and reputational risks
- Fintech / Cryptocurrency – examiners should identify banks that are implementing significant changes in their operations using new technology and evaluate implementation, including cloud technology, artificial intelligence and digitization in the risk management process
- Climate – the OCC is working to better understand how the financial risks associated with climate change may affect the safety and soundness of institutions and their ability to serve their communities. During FY 2022 the agency will continue in formation gathering and conduct industry outreach
The OCC concludes that the agency should focus on “significant” risks in FY 2022, while still covering other areas. The strategy will be to focus on control functions including the audit, loan review and risk management processes. To facilitate this, the CBS operating units will coordinate and prioritize resources and conduct horizontal risk assessments throughout the fiscal year. The OCC will provide updates on supervisory priorities, emerging risks and horizontal risk assessments in the “Semiannual Risk Perspective” report.
- OCC Issues Bank Supervision Operating Plan for Fiscal Year 2022 OCC Releases Bank Supervision Operating Plan for Fiscal Year 2022 | OCC (treas.gov)
- OCC Outlines 2022 Bank Supervision Operating Plan OCC Outlines 2022 Bank Supervision Operating Plan | Cadwalader Cabinet | Find Know Do
- OCC Releases Banks Supervision Operating Plan for FY 2022 USA: OCC releases banks supervision operating plan for FY 2022 | News post | DataGuidance
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