The Office of the Comptroller of the Currency (“OCC”) described the principal risks facing national banks and federal savings associations in its Semiannual Risk Perspective for Spring 2017 (the “Report”).
In the Report, the OCC identified the following key risk themes:
- strategic risk due to a changing regulatory climate, low interest rates and competition from nonfinancial firms, including fintech companies;
- increased credit risk and relaxed underwriting standards due to strong risk appetite and competitive pressures;
- elevated operational risk as a result of increased reliance on third-party service providers and attendant cybersecurity risks; and
- high compliance risk as banks navigate money laundering risks and new consumer protection requirements.
OCC supervisory priorities for the next 12 months will remain broadly the same as in 2016 and will include the objective of identifying and assigning regulatory ratings and risk assessments. The OCC also pledged a continued commitment to monitoring and evaluating risks presented by third-party service providers.
In remarks on the Report, Acting Comptroller of the Currency Keith A. Noreika stated:
“The OCC employs a risk-focused approach to supervision, and tailors examination strategies to the individual risks of each of its supervised institutions and will pay close attention to these key risk areas over the next six months.”
Lofchie Comment: A material portion of the “risk” that banks face, according to the report, is regulatory risk. The Comptroller’s remark that “[m]ultiple new or amended regulations are posing challenges” to banks and the financial system also echoes the comment made by the SEC’s Investor Advocate in his recent report to Congress that he would “encourage Congress to consider giving the [SEC] a respite from statutory mandates” (at 3). It is clear that the very rate and extent of regulatory change has itself become a threat to the financial system.