The Workplace of the Comptroller of the Foreign money (OCC) has just lately
offered its Semiannual
Threat Perspective for Fall 2023, delving into the essential challenges going through
the federal banking system. The report identifies credit score, market, operational,
and compliance dangers because the predominant themes shaping the banking panorama.
Unpacking Key Threat Themes: Credit score, Market, Operational, and Compliance
Dangers
The OCC report underlines the escalating credit score danger attributed to greater
rates of interest, growing vulnerability in business actual property lending,
extended inflation, declining company profitability, and potential financial
development deceleration. Concurrently, compliance danger stays elevated as a result of a
heightened give attention to guaranteeing equal entry to credit score, truthful therapy of
customers, revolutionary expertise adoption, and expanded partnerships with third
events.
AI’s Rising Position and Dangers in Banking
Regardless of the potential advantages of widespread AI adoption in banking, the
OCC identifies it as an rising danger.
The report underscores the challenges related to AI, spanning
compliance danger, credit score danger, fame danger, and operational danger. Whereas AI
holds promise for effectivity and innovation, cautious administration is crucial to
mitigate its inherent dangers.
Steering on ‘Purchase Now, Pay Later’ Lending
Along with danger identification, the OCC has issued steerage on ‘Purchase
Now, Pay Later’ (BNPL) lending, a sector gaining prominence. The steerage
emphasizes danger administration in BNPL loans, payable in 4 or fewer installments
with out finance costs.
The OCC’s performing comptroller, Michael Hsu, additionally highlighted the significance of
accountable practices within the BNPL market, notably as the vacation purchasing
season unfolds. The steerage directs banks to uphold clear underwriting,
reimbursement phrases, pricing, and safeguards, guaranteeing transparency in advertising and marketing
supplies and disclosures.
Third-Social gathering Threat Administration: A Core Consideration
Donna Murphy, the OCC’s performing deputy comptroller for the Workplace of
Monetary Expertise, careworn the “important” nature of third-party
danger administration. This emphasis comes within the backdrop of accelerating
collaborations between banks and fintech corporations. Murphy’s assertion earlier than
the Home Subcommittee on Digital Belongings, Monetary Expertise, and Inclusion
reiterates the potential advantages of third-party partnerships however underscores
the need for sturdy danger administration to guard customers and keep
total financial institution security and soundness.
AI and Machine Studying Panorama in Banking
Addressing the Home Subcommittee, Murphy additionally mentioned the rising
integration of AI and machine studying within the banking sector. Whereas
acknowledging the numerous potential advantages, Murphy highlighted the OCC’s
continued give attention to managing and controlling the dangers related to AI use in
banking. Potential dangers embrace poorly designed mathematical fashions, defective
knowledge, adjustments in mannequin assumptions, insufficient validation, testing, and restricted
human oversight.
Wanting Ahead
As banks navigate the dynamic panorama of evolving dangers, compliance
challenges, and technological integrations, discovering a steadiness between
innovation and danger administration turns into crucial. The OCC’s complete
report and steerage intention to equip banks with the insights wanted to navigate
these complexities efficiently.
The Workplace of the Comptroller of the Foreign money (OCC) has just lately
offered its Semiannual
Threat Perspective for Fall 2023, delving into the essential challenges going through
the federal banking system. The report identifies credit score, market, operational,
and compliance dangers because the predominant themes shaping the banking panorama.
Unpacking Key Threat Themes: Credit score, Market, Operational, and Compliance
Dangers
The OCC report underlines the escalating credit score danger attributed to greater
rates of interest, growing vulnerability in business actual property lending,
extended inflation, declining company profitability, and potential financial
development deceleration. Concurrently, compliance danger stays elevated as a result of a
heightened give attention to guaranteeing equal entry to credit score, truthful therapy of
customers, revolutionary expertise adoption, and expanded partnerships with third
events.
AI’s Rising Position and Dangers in Banking
Regardless of the potential advantages of widespread AI adoption in banking, the
OCC identifies it as an rising danger.
The report underscores the challenges related to AI, spanning
compliance danger, credit score danger, fame danger, and operational danger. Whereas AI
holds promise for effectivity and innovation, cautious administration is crucial to
mitigate its inherent dangers.
Steering on ‘Purchase Now, Pay Later’ Lending
Along with danger identification, the OCC has issued steerage on ‘Purchase
Now, Pay Later’ (BNPL) lending, a sector gaining prominence. The steerage
emphasizes danger administration in BNPL loans, payable in 4 or fewer installments
with out finance costs.
The OCC’s performing comptroller, Michael Hsu, additionally highlighted the significance of
accountable practices within the BNPL market, notably as the vacation purchasing
season unfolds. The steerage directs banks to uphold clear underwriting,
reimbursement phrases, pricing, and safeguards, guaranteeing transparency in advertising and marketing
supplies and disclosures.
Third-Social gathering Threat Administration: A Core Consideration
Donna Murphy, the OCC’s performing deputy comptroller for the Workplace of
Monetary Expertise, careworn the “important” nature of third-party
danger administration. This emphasis comes within the backdrop of accelerating
collaborations between banks and fintech corporations. Murphy’s assertion earlier than
the Home Subcommittee on Digital Belongings, Monetary Expertise, and Inclusion
reiterates the potential advantages of third-party partnerships however underscores
the need for sturdy danger administration to guard customers and keep
total financial institution security and soundness.
AI and Machine Studying Panorama in Banking
Addressing the Home Subcommittee, Murphy additionally mentioned the rising
integration of AI and machine studying within the banking sector. Whereas
acknowledging the numerous potential advantages, Murphy highlighted the OCC’s
continued give attention to managing and controlling the dangers related to AI use in
banking. Potential dangers embrace poorly designed mathematical fashions, defective
knowledge, adjustments in mannequin assumptions, insufficient validation, testing, and restricted
human oversight.
Wanting Ahead
As banks navigate the dynamic panorama of evolving dangers, compliance
challenges, and technological integrations, discovering a steadiness between
innovation and danger administration turns into crucial. The OCC’s complete
report and steerage intention to equip banks with the insights wanted to navigate
these complexities efficiently.