OCC Warns of Compliance Risk as Banks Adapt to COVID-19 Changes

The OCC today cautioned banks to be vigilant about compliance risks that could arise as a result of their response to the coronavirus pandemic. In its Semiannual Risk Perspective—which was compiled between April and June as state and local economies began to reopen—the OCC noted that “compliance risk is elevated due to a combination of operations, employees working remotely, and the requirement to operationalize new federal, state and proprietary programs designed to support consumers,” including the Paycheck Protection Program and other relief efforts.

“The volume of change and short timelines for implementing changes placed additional strains on banks already operating in a stressed environment,” the OCC noted. “Bank risk management programs should maintain effective controls for third-party due diligence and monitoring and other oversight processes, operational errors, heightened cyber security risks, and potential fraud related to stimulus programs.”

The OCC acknowledged that banks were well-positioned at the outset of the pandemic. However, the report noted that credit risk has increased sharply as economic conditions deteriorated earlier in the year, stressing banks’ balance sheets. “Banks should update their portfolio management practices regarding stress tests to incorporate both the direct and indirect impacts of changing economic and market conditions,” the OCC said.

The OCC also flagged interest rate risk, operational risks related to banks’ COVID-19 response, heightened cyber risks and compliance risks related to BSA/AML, consumer compliance and fair lending as areas of concern.