The OCC Committee on Bank Supervision released the bank supervision operating plan for the fiscal year 2021. The plan outlines supervisory priorities and aligns with the Strategic Plan of OCC for fiscal years 2019–2023 and the priorities of the National Risk Committee. The plan provides the foundation for policy initiatives and for supervisory strategies as applied to individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers. OCC will provide periodic updates about supervisory priorities through the Semiannual Risk Perspective in the Fall and Spring.
OCC states that it may adjust supervisory strategies, as appropriate, during the fiscal year in response to the emerging risks and supervisory priorities. For fiscal year 2021, the supervisory efforts will be flexible to recognize the broad, bank-specific impact of pandemic and resulting the economic, financial, operational, and compliance implications. In addition to the baseline supervision to assign ratings, the development of supervisory strategies will focus on the following risk areas:
- Credit risk management, given projected weaker economic conditions. Examiner focus would be on commercial and retail credit risk control functions, including portfolio administration and risk management, timely risk identification, independent loan review, risk rating accuracy, policy exception tracking, collateral valuation, stress testing, and collections/workout management.
- Commercial and residential real estate concentration risk management, including verification that risk assessment and management practices adequately account for concentration risks. Examiner focus should include portfolios with material concentrations, especially in sectors hard hit by the pandemic.
- Appropriateness of allowance for loan and lease losses/allowance for credit losses, forecasting the cumulative impact from a lengthy period of eased underwriting standards, and potential higher probability of default and loss given default. Examiners should focus on Current Expected Credit Losses (CECL) implementation for institutions that have adopted the standard and CECL preparation for those that will be implementing the standard.
- Cybersecurity and operational resilience with a focus on threat vulnerability and detection, access controls and data security, and managing third-party access. Examiners should also focus on incident response and remediation processes.
- Compliance risk management associated with 2020 pandemic-related bank activities, such as CARES Act loan forbearance requirements or other bank-provided consumer loan or account accommodations.
- Bank preparation for the phase-out of the London Interbank Offering Rate as a reference rate after 2021, including operational and consumer impact assessments and change management related to implementation and disclosure of an alternative index for pricing loans, deposits, and other products and services.
- Proper oversight of significant third-party relationships, including partnerships. Examiners should identify where those relationships represent significant concentrations in operations, bank resiliency, or other risks. and should assess risk oversight of third party’s own management of cybersecurity and resilience risks.
- Change management over significant operational changes. Examiners should evaluate governance over new technology innovation and implementation, including use of cloud computing, artificial intelligence, digitalization in risk management processes, new products and services, and notable changes in strategic plans.
Keywords: Americas, US, Banking, COVID-19, CECL, LIBOR, Cyber Risk, Credit Risk, Fintech, Operation Plan, Strategic Plan, CARES Act, Outsourcing Arrangements, OCC
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