The Office of the Comptroller of the Currency (OCC) and the Federal Reserve conduct regular examinations of the institutions they supervise to assess financial health, risk management practices, and compliance with laws. When deficiencies or violations are identified, they can take enforcement actions and levy fines as warranted to correct the deficiencies. These enforcement actions and the risk perspectives and reporting published by the OCC and the Federal Reserve offer valuable insight into their regulatory priorities, areas of scrutiny, and remediation requirements.
This article summarizes this information thus far for 2024 and presents some of the immediate actions banks can take to ensure compliance and avoid enforcement actions and fines.
The Risk Perspectives
1. Market Risk
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The OCC highlights that net interest margins are under pressure due to strong deposit competition and elevated interest rates.
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The Federal Reserve adds that some banks face challenges navigating changes in depositor behavior and higher funding costs.
2. Operational Risk
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The OCC emphasizes the elevated operational risk due to cyber threats, increasing digitalization, and the complexity of the operating environment.
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The Federal Reserve also underscores the importance of operational resilience and third-party vendor management to protect against technology-based failures, cyber incidents, and other disruptions.
3. Compliance Risk
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The OCC stresses the need for banks to maintain a compliance risk management framework that evolves with their risk profiles and includes fintech partnerships and other third-party relationships.
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The Federal Reserve highlights the importance of consumer protection and community development through compliance with applicable laws and regulations.
Key Supervisory Priorities
1. Risk Management
Both the OCC and the Federal Reserve emphasize the importance of continuous improvement in risk management practices to guard against complacency. Banks are expected to have adequate liquidity risk management practices and regularly test their ability to access multiple contingent funding sources.
2. Operational Resilience
The OCC and the Federal Reserve highlight the necessity of firmwide resilience efforts to manage interconnected risks and ensure the continuity of critical operations during disruptions.
3. Third-Party Risk Management
The OCC and the Federal Reserve stress the importance of effective management and oversight of third-party relationships, especially those involving higher risk and critical activities, and require appropriate business continuity plans to avoid disruption.
Why This Matters to Banks
Understanding and addressing these risks and supervisory priorities is crucial for banks to maintain their safety and soundness and to comply with regulatory requirements. Effective risk management practices not only help banks navigate the challenges of the evolving economic and regulatory environment but also present opportunities for growth and stability.
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Our experts have extensive experience working with financial institutions and regulators. We have seen firsthand the costs and consequences of failing to proactively manage market, operational, compliance and third-party risks. We help financial institutions conduct a gap analysis and create an appropriate remediation plan to correct deficiencies. We offer our services in two models – a self-service model utilizing our compliance assets such as regulatory checklists and process guides, and a full-service model engaging our experts to perform the services.