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Taking a Close Look at OCC Exam Priorities for FY ’23

Updated: Dec 22, 2022


Staying on top of how examiners will assess banking risks can seem a little like a game of Whac-a-Mole. Just as soon as you’ve wrestled with one source of risk, another suddenly pops up.


For this reason, documents like the OCC’s FY’23 Bank Supervision Operating Plan can be enormously helpful. Each year, the OCC outlines a long list of its own priorities for examiners in the coming months. Financial professionals need to pay attention to what the regulators are looking at so they can be prepared for upcoming examinations.


The OCC’s plan clearly acknowledges that the economic times we find ourselves in are uncertain. “For FY 2023,” the OCC says, “examiners will focus on the impacts of volatile economic conditions such as high inflation, increasing recession possibilities, and rising interest rates.”


The OCC continues: “Examiners will also consider geopolitical events that may have adverse financial, operational, and compliance implications.” The war in Ukraine leaps to mind. As law firm Phelps Dunbar says, the list of OCC priorities clearly anticipates “inclement weather” ahead.


Here are a few of the OCC’s priorities that community banks and credit unions should be considering:


Safety and soundnessand fairness. Specifically, the OCC calls attention to the need for banks to maintain “stable financial positions,” regarding “capital, allowance for credit losses, management of net interest margins, liquidity and earnings.” Notably, here the OCC also highlights talent management processes; gaps in a workforce could lead to control breakdowns or trouble meeting regulatory requirements in terms of, among other things, material audits.


Operational resilience and cybersecurity. The OCC explicitly links the two because cybersecurity threats have implications for a bank’s operational risk. When it comes to priorities, here’s what the OCC says: “Examiners should review the effectiveness of governance processes dealing with technology investment and the implementation of systems and infrastructure changes.”


Third parties. When it comes to risk management governance, the OCC specifically pinpoints relationships with fintechs for scrutiny. Says the OCC, “Examiners should identify the risk attributes of these relationships, for example, if they involve customer-facing products and services, are critical to bank operations, represent significant concentrations, affect the bank’s operational resilience, or affect compliance with requirements such as the Bank Secrecy Act and consumer protection laws.”


Consumer compliance. Under this umbrella, the OCC points out that its examiners will evaluate compliance staff, assessing a number of things, including the number of staff, expertise and training, and changes to compliance staffing. Examiners will also look at whether compliance is supported by third parties—and presumably how these third-party relationships work.


Payments products. New payment systems that banks are—or may soon be - offering pose a host of risks, from operational to compliance, strategic, credit, liquidity, and reputation. The question, says the OCC, is how are these risks incorporated into institution-wide risk assessments and the review processes for new products?


BSA (Bank Secrecy Act) and AML (anti-money laundering). Examiners should continue to assess bank plans for implementing changes to existing BSA/AML compliance programs that will be required under the Anti-Money Laundering Act of 2020.


Fintech and digital assets. The OCC asks examiners to look into how institutions are using financial innovations to make significant changes in their operations. Here, specific mention is made of crypto. Among practices examiners should look for are whether banks have “sought and received a supervisory non-objection before engaging in the activities described in Interpretive Letter 1179.”


To read more about the OCC’s priorities and objectives for FY ‘23, click here.


RiskScout is committed to providing educational resources for all banks and credit unions. With a former OCC regulator on staff, RiskScout is here to help you better understand what these 2023 priorities mean for you. Feel free to contact us for additional information here.

 

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