OCC Releases Bank Supervision Operating Plan for Fiscal Year 2024

The Office of the Comptroller of the Currency (OCC) has released its Fiscal Year 2024 Bank Supervision Operating Plan, which outlines the Office’s supervisory priorities for the upcoming year. The plan is primarily meant for OCC staff to guide them towards corresponding supervisory activities, but is also a valuable source of information for supervised entities to find out the key priorities of the regulator. The key issues addressed in the „Operating Plan“ are briefly summarized below:
(1) Managing climate-related financial risks: In view of the rapidly progressing climate change and the urgent need to integrate the risks resulting from this change into risk management practices of supervised institutions, the OCC will closely monitor the development of banks‘ climate-related financial risk framework for safety and soundness and engage with bank management and other regulators to better understand the challenges banks face in this effort. This includes examining data and metrics, governance and oversight, policies, procedures, limits, strategic planning, and scenario analysis capabilities and techniques.
(2) Building operational resilience and mitigating cyber-attacks: Not least since the invasion of Ukraine have cyber-attacks been an issue in the banking industry. Therefore, a key focus of the OCC will be on assessing and monitoring institutions‘ resilience to identify weaknesses and deficiencies in this context. The OCC will thereby particular look at backup strategies for system and data recovery in the face of disruptive attacks like ransomware. Additionally, the OCC will focus on banks‘ capabilities in cyber intelligence, threat detection, software patch management, and access controls, including multi-factor authentication. Incident response processes and compliance with reporting requirements, such as ransom or extortion demands, will also be monitored.
(3) Asset and liability management: In view of recent bank issues, a key focus of the OCC will be the asset and liability management practices of supervised institutions. The regulator will thereby particularly monitor firms‘ activities as regards sensitivity analysis, stress testing, contingency planning, and liquidity funding. The OCC will also instruct its staff to ensure that institutions‘ risk appetites and strategies align with the projected risks related to asset values, deposit stability, liquidity, capital, and earnings. Another key focus will be the assessment of the adequacy of contingency funding plans, ensuring that banks are operationally ready to access contingency funding sources, monitor borrowing lines effectively, manage collateral properly, and access contingency liquidity sources efficiently when needed.
(4) Fair lending: A key issue of the regulator will be the supervision of lending activities that encompass the full life cycle of credit products. The aim of the regulator is to ensure „equal access“ to banking services and products and prevent discriminatory practices, including potential mortgage lending discrimination resulting from appraisal bias or discriminatory property evaluations. OCC staff is thereby instructed to particularly look at various factors that could impact fair lending, such as changes in strategy, personnel, products, services, underwriting systems, CRA assessment areas, and operating conditions since the last assessment.
(5) AML and CFT: As always, the prevention of money laundering (ML) and the financing of terrorism (TF) will be a key priority of the OCC in 2024. Therefore, OCC staff is expected to assess, if institutions‘ operations and systems are effectively designed and implemented to reduce ML and TF risks. The assessment is likely to include an examination of banks‘ products, services, customer base, and geographic areas served. Additionally, the OCC plans to look at bank’s systems and processes to ensure compliance with U.S. sanctions imposed and enforced by OFAC.
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Other key areas of focus include the assessment of effective implementation of allowance for credit losses, the management of credit risk particularly in view of current market conditions, and institutions‘ engagement in DLT technologies and products.