OCC report highlights strategic risks from fintech, operational risk from third parties

OCC report
OCC report

Strategic, credit, operational and compliance risks remain top concerns for the federal banking system, the US Office of the Comptroller of the Currency (OCC) reports in its Semiannual Risk Perspective for Spring 2017 – writes Paybefore (Banking Technology‘s sister publication).

The report highlights competitive pressure from fintech companies, loosening of credit underwriting standards, operational risks associated with third-party service providers, and compliance risks around Bank Secrecy Act (BSA) and anti-money laundering (AML) monitoring.

In terms of competition from nonbank technology companies, the OCC notes that banks are facing strategic risk associated with decisions to expand into new products and services, delivery channels and M&A activity.

Meanwhile, credit underwriting standards and practices across commercial and retail portfolios remain an area of OCC emphasis. Over the past two years, commercial and retail credit underwriting has loosened, showing a transition from a conservative to an increasing risk appetite as banks strive to achieve loan growth and maintain or grow market share, the agency said.

The OCC also cited operational risk because of increasing cyber threats, reliance on concentrations in significant third-party service providers, and the need for sound governance over product service and delivery.

What’s more, the OCC examiners continue to see banks struggle with consumer and BSA compliance, according to Acting Comptroller of the Currency Keith A Noreika.

“Evolving compliance risks and increasing complexity of the risk environment present significant challenges for bank compliance risk management systems,” says Noreika. “At the same time, banks continually have to improve their BSA monitoring and detection capabilities as money launderers and terrorist financiers find new ways to exploit the financial system.”

Noreika also notes that risks vary based on an institution’s profile. “Compliance, governance and operational risk issues remain leading risk issues for large banks while strategic, credit and compliance risks remain the leading issues for mid-size and community banks,” he says.

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