OCC identifies key challenges to banks’ Compliance risk management

Complex banking environment increases challenge of Compliance risk management

Regulatory changes and policy initiatives pose substantial challenges to banks’ efforts at Compliance risk management, according to the Office of the Comptroller of the Currency (OCC).

In its Spring 2022 report, the OCC asserted that “compliance risk is heightened as banks navigate the current operational environment, geopolitical risks, regulatory changes, and policy initiatives.”

And in managing their various risk areas that also include credit and operational risk, banks are facing challenges retaining and replacing staff, especially those with specialized experience, due to increasing turnover.

The challenges of staffing and of retaining personnel with subject-matter expertise becomes especially important, according to the OCC, face more and more complex and interrelated challenges “such as inflation, a rising interest rate environment, and other factors related to the pandemic and geopolitical events.”

In Compliance risk specifically, banks must navigate “the complexity of sanctions imposed in response to the Russian invasion of Ukraine. At the same time, the OCC has observed an increase in the competition for compliance subject matter experts, at both the bank management and staff levels.”

The report also emphasized the rise in innovative products and technologies like real-time payment products, digital and mobile services, application programming interfaces, data aggregation options, contactless payment devices, and distributed ledger technologies.

The OCC notes that “this increasing complexity warrants appropriate due diligence, change management, and risk management processes that reflect the bank’s size, complexity, and risk profile, and account for and keep pace with the complexity of the new, modified, or expanded activity. Examiners will continue to assess how banks are managing risks related to changes in operating environments driven by these innovations.”

Experts expect these rises in complexity of operational and compliance risks to be magnified by the staff churn and competition for subject-matter experts. They also warn that the trend toward third-party risk management needs careful attention to due diligence commensurate with the risk posed.

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