The Office of the Comptroller of the Currency’s (OCC) Committee on Bank Supervision (CBS) recently issued its annual Bank Supervision Operating Plan for FY 2024, which sets forth the OCC’s supervision priorities and objectives across CBS operating units. The Plan also facilitates the execution of supervisory strategies for individual national banks, federal savings associations, and federal branches of agencies of foreign banking organizations (collectively, Banks). For FY 2024, OCC examiners plan to focus on the impacts of such volatile economic conditions as high inflation, rising interest rates, and continuing recession possibilities as well as consider geopolitical events that may have adverse financial, operational, and compliance implications on the economy.
OCC supervision will focus on the below areas, inter alia:
- Consumer compliance: The OCC will focus on a Bank’s compliance risk management systems for new or innovative products, expanded services, and delivery channels offered to consumers or that involve products or services offered through third-party relationships, including those with fintechs or through banking-as-a-service activities. Supervisory focus may include a Bank’s processes to ensure compliance with statutory requirements prohibiting unfair, deceptive, or abusive acts or practices, including review of risk management practices for overdraft protection programs with features that may present heightened risk such as “authorize positive, settle negative” (APSN) or multiple representment fees. (We find the OCC’s reference to “abusive acts or practices” puzzling since the OCC’s enforcement authority under Section 5 of the FTC Act is limited to unfair or deceptive acts or practices.) In April 2023, the OCC issued a bulletin on APSN overdraft and non-sufficient funds fee practices. In July 2023, the OCC entered into a consent order for alleged violations by a bank arising from its representment fee practices. OCC supervisory focus may further consider whether relevant aspects of products or services, including those offered through third-party relationships, are communicated to consumers in a clear and consistent manner, with a concentration on compliance challenges, including fraud and error resolution, in light of increasing use of person-to-person payments.
- Credit: The OCC will focus on the effectiveness of a Bank’s actions in identifying and managing credit risk given significant changes in market conditions, interest rates, and geopolitical events. OCC examiners may further evaluate a Bank’s stress testing of adverse economic scenarios and potential implications to capital, including increasing operating and borrowing costs for vulnerable retail and commercial borrowers, in addition to whether loss mitigation practices, including forbearance and modification programs, consider a borrowers’ ability to repay and offer meaningful, affordable, and sustainable payment assistance.
- Fair lending: The OCC will focus on an assessment of fair lending risk and whether banks are ensuring equal access to products and services, including consideration of all factors that could affect a Bank’s fair lending risk, such as the latest changes to strategy, personnel, products, services, underwriting systems, CRA assessment areas, and operating environments. Supervisory focus may include a review of the full life cycle of credit products, including the potential for mortgage lending discrimination resulting from appraisal bias or discriminatory property evaluations.
- Operations: The OCC will focus on the identification and assessment of products, services, and third-party relationships with unique, innovative, or complex structures, such as real-time payments, banking-as-a-service arrangements, distributed ledger-related activities, or use of artificial intelligence technologies. OCC examiners may further assess a Bank’s risk management processes and controls of third-party relationships, particularly those with financial technology (fintech) companies, to safeguard against operational, compliance, reputation, financial, or other risks.
- Payments: The OCC will focus on the identification and evaluation of a Bank’s payment systems and payments-related products and services being offered or planned, especially new or novel products, services, or delivery channels, such as person-to-person payments. OCC examiners may further consider potential operational, compliance, credit, liquidity, strategic, and reputation risks and how they are incorporated into bank-wide risk assessments.
The OCC will provide periodic updates about supervisory priorities, emerging risks, and horizontal risk assessments in its Semiannual Risk Perspective report.