ABA Banking Journal
No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
SUBSCRIBE
ABA Banking Journal
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
No Result
View All Result
No Result
View All Result
ADVERTISEMENT
Home Compliance and Risk

The core of the challenge: Technology risk in a new era of continual change for banks

July 28, 2022
Reading Time: 4 mins read
The core of the challenge: Technology risk in a new era of continual change for banks

By John Hintze

More banks are considering changing their core platforms, an undertaking that has traditionally been rare because of the broad consequences across the bank and the potential risks involved. Those discussions are being driven by customers increasingly demanding the speed and convenience of digital services, which present a host of other technology-related risks.

“We’re hearing more and more that banks are considering changing their core system or system provider,” says Beth Knickerbocker, chief innovation officer of the Office of the Comptroller of the Currency. She says that has been driven by the push to provide real-time, digital services, “beyond just a fancy front-end, so now you need different core processes to provide that.”

rightwards arrow
View more
risk and compliance articles

Knickerbocker provided her insight as part of a panel, including the heads of risk at two banks, that discussed the impact of technology on banks’ risk management at the American Bankers Association’s recent ABA Risk 2022 conference. Stephanie Boryla, the senior director of enterprise risk management at Bentonville, Arkansas-headquartered Arvest bank, with more than $18 billion in assets, says her bank is working through the transition to a real-time core technology, and risk management aims to facilitate the move rather than being the “no group.”

Nevertheless, the transition can seem overwhelming since it involves far more than simply replacing technology in light of the domino effects across the bank, from back-office operations to communications with employees and customers, Boryla adds. Consequently, the bank is looking at its product sets and clients and seeking to prioritize steps in the migration, such as launching new products first on the new core, then onboarding new customers to the new platform while existing customers transition more gradually.

“So as we do the migration, it’s less of a big switch than having to transition a large volume,” Boryla points out.

Joanne Campbell, EVP for enterprise risk management and chief risk officer at $5.5 billion-asset Camden National Bank, says her Maine-headquartered bank uses an office of project management approach to adopt new technology. It brings together executives from across different functions to scope the project and determine the timeframe and necessary resources. While time consuming, there is ever more competitive pressure to speed up implementations.

“We want to make sure we’re helping people to be thoughtful and understand all the controls that are being put I place, and we know how we’re going to mitigate whatever risks we’ll be facing,” she says.

The importance of due diligence

Knickerbocker adds that moving to real-time core technology requires revamping entire processes, and the main providers of that technology are moving in that direction. New providers are also emerging, she says, with some providing modules for different key functions that enable more flexibility in the transition to a real-time environment than having to run new and legacy systems parallel to each other.

Fintech companies, often relatively new firms, are also seeking to partner with banks to provide elements of that core technology. Knickerbocker recommends an interagency guide published in August 2021 about conducting due diligence on technology companies that was geared toward community banks but provides helpful insight for all institutions, as well as the OCC’s frequently asked questions published in March 2020 on managing third-party relationships.

“I can’t emphasize enough the importance of due diligence,” she says, adding one key aspect is whether the technology firm’s culture fits with the bank’s, given many of those firms are relatively young. “Does the fintech understand what a bank is and its responsibilities with respect to regulatory compliance and the huge reputational risk it faces every day? And can it adapt to that?”

Ongoing monitoring of third parties is also critical, since newer technology firms can quickly pivot their businesses, Knickerbocker adds, adding that it’s important to consider exit strategies upfront.

“That will help you as you negotiate the contract, because the bank can put in certain service-level agreements along with exit strategies,” she says.

In banking-as-a-service-type relationships, where the fintech’s front-end faces the customer, the bank must think about what happens should that relationship end, given its regulatory responsibilities in terms of record-keeping and customer treatment that the fintech may overlook, Knickerbocker says.

Developing governance in the era of artificial intelligence

Much of the real-time banking technology available today makes use of evolving technology such as artificial intelligence and machine learning. A significant challenge in today’s tight job market is not only finding the talent to handle the reams of data those technologies produce, but to monitor and review those processes and build controls around them.

Campbell says her team has focused on developing a more formal governance program around the use of data, to ensure the correct controls and documentation are in place. She adds that both the bank’s internal and external auditors are focusing more on the technology space, which was always important but has become increasingly so with the introduction of AI, ML and robotic process automation.

Another issue under discussion, with strategic ramifications, is the ethical use of customers’ data, Boryla says. Banks collect customers’ information including debit and credit card activity, loans and paychecks–data that new technology mines and analyzes—but how should they be using it? And given that data passes through or may be used by third parties, she asks, what safeguards can be put in place?

“We’re consistently looking at third-party risk management,” Boryla says. “We have to ask the challenging questions around where is our data going and who has access to it.”

Alas, bankers are only human. Knickerbocker noted the tendency to seek new technology-driven services to catch up to the pack, but urged bankers to complete the “standard blocking and tackling requirements.” First, understand the prerequisites that must be in place to effectively use the technology and that means thoroughly understanding the data, “warts and all.”

That’s particularly important when using technologies such as AI, which looks for patterns in the data from which it bases decisions.

ADVERTISEMENT

“The outcome is really driven by how good that data is,” Knickerbocker said. “The old adage ‘Garbage in, garbage out’ is really on steroids when you’re talking about an artificial intelligence system.”

John Hintze is a frequent contributor to the ABA Banking Journal and its digital channel ABA Risk and Compliance.

Tags: Artificial intelligenceCore processingDataThird-party risk
ShareTweetPin

Related Posts

ABA donates to Texas flood relief efforts, urges bankers to contribute

FDIC issues regulatory relief guidance for Texas

Compliance and Risk
July 11, 2025

The FDIC released guidance with steps intended to provide regulatory relief to financial institutions and facilitate recovery in areas of Texas recently affected by severe storms and flooding.

BIS drafts guidance for central banks on AI adoption

BIS releases report on connections between banks and nonbanks

Compliance and Risk
July 11, 2025

Differences between regulations for banks and those for nonbank financial intermediaries may have created incentives to shift business activities to the NBFI sector, so bank supervisors should apply “close scrutiny” to such interactions, according to the report.

Regulators take issue with discrimination definition in proposed appraisal standards

HUD reverses Biden-era policies on appraisal review

Compliance and Risk
July 11, 2025

HUD eliminated several of the core policies adopted by the Property Appraisal and Valuation Equity task force, an interagency group of 13 federal agencies formed during the Biden administration to address alleged discrimination in the appraisal process.

Fed releases agenda for upcoming conference on large bank capital requirements

Fed seeks public input on large bank rating system revision

Compliance and Risk
July 10, 2025

The Federal Reserve requested comment on a proposal to revise its supervisory rating framework for large bank holding companies to address the "well managed" status of the firms.

FinCEN, IRS-CI launch series to help banks combat fentanyl trafficking

FinCEN extends compliance dates for fentanyl orders

Compliance and Risk
July 9, 2025

FinCEN has extended by more than a month the effective dates for orders involving three Mexico-based financial institutions with alleged ties to fentanyl trafficking, according to an agency statement.

ABA Regulatory Policy and Compliance Inbox: Must banks disclose all co-branding relationships?

ABA Regulatory Policy and Compliance Inbox: Just what is reportable under CRA?

Compliance and Risk
July 9, 2025

What about refinances and renewals for small business, small farm and community development loans? And: Understanding risk-based pricing notices.

NEWSBYTES

ABA, associations seek clarity about Fannie, Freddie credit scoring change

July 11, 2025

ABA DataBank: Copper prices rise on tariff announcement

July 11, 2025

FDIC issues regulatory relief guidance for Texas

July 11, 2025

SPONSORED CONTENT

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

July 1, 2025
AI Compliance and Regulation: What Financial Institutions Need to Know

Unlocking Deposit Growth: How Financial Institutions Can Activate Data for Precision Cross-Sell

June 1, 2025
Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

April 25, 2025
Outsourcing: Getting to Go/No-Go

Outsourcing: Getting to Go/No-Go

April 5, 2025

PODCASTS

Breaking down the bank-related provisions in the big budget bill

July 10, 2025

Podcast: Inside ABA’s new Treasury Check Verification System API

June 25, 2025

Podcast: Staying close to clients amid tariff-driven volatility

June 18, 2025
ADVERTISEMENT

American Bankers Association
1333 New Hampshire Ave NW
Washington, DC 20036
1-800-BANKERS (800-226-5377)
www.aba.com
About ABA
Privacy Policy
Contact ABA

ABA Banking Journal
About ABA Banking Journal
Media Kit
Advertising
Subscribe

© 2025 American Bankers Association. All rights reserved.

No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive

© 2025 American Bankers Association. All rights reserved.