OCC Announces Examination Priorities for 2023

Earlier this month the Office of the Comptroller of the Currency released its Supervision Operating Plan for 2023, setting out its risk-based examination priorities for national banks. The priorities are notable for national banks of all sizes, as they apply equally to large, mid-size and community banks. Similarly, as they often reflect the priorities of other state and federal bank regulators, the OCC list also serves as a useful guide for non-OCC institutions.

Clearly anticipating inclement weather for the nation's banks, the list of priority areas for examiners includes thirteen areas of focus for 2023, and underscores that examiners will expressly consider the impacts of inflation, rapidly rising interest rates and other volatile economic conditions and geopolitical events.

Exam priorities for 2023 include, among other things:

• • Safety and Soundness. Safety and soundness considerations top the list. Examiners will be keenly reviewing banks' allowance for credit losses and management of net interest margins, liquidity, and earnings, along with their talent recruitment, training, retention, and succession efforts. Examiners will give heightened scrutiny to the effect of rising interest rates on banks' asset values, deposit stability, liquidity, and earnings. They will assess institutions' abilities to access primary, secondary and contingent sources of liquidity in the event continued rate increases adversely affect deposit volumes and mix, and erode credit quality. Additionally, examiners will focus on stress testing credit portfolios, taking into account increased borrowing costs at origination, renewal and over the credit lifecycle. Assessments of banks' allowance policies will consider the reasonableness of material assumptions, forecasting methods and forecast periods.
  • Cybersecurity. Operational resiliency and cybersecurity remain a key priority with examiners considering operational risks attributable to cyber-threats, control breakdowns and management gaps. Examiners will be giving explicit consideration to institutions' processes for backing up data and their ability to recover from ransomware attacks and other, similar cyber-related disruptions. Examinations will focus on the effectiveness of banks' information security programs, including threat detection and prevention, access controls, and life-cycle management.
  • FinTech Partners. Once again banks' reliance on third party service providers, such as FinTech partners, are in focus. Examiners will review service provider agreements to determine whether institutions have personnel sufficient to perform the banks' duties, on the one hand, and whether the agreements sufficiently consider operational and compliance risks, on the other, including specifically risks related to money laundering, privacy, and data protection.
  • Payments Products, Crypto, and BSA/AML. Examiners will evaluate the degree to which banks offer new payment products and how these products may introduce novel operational, compliance, credit, and reputational risk. Examiners will give special consideration to cryptocurrency and other digital asset-related products and services, and consider whether the banks' due diligence, technology, and other risk management practices are sufficient for these products, and whether banks have sought or received non-objection decisions prior to offering such products or services. In addition, BSA/AML considerations remain a primal concern for examiners, especially considering the increased adoption of new payment and crypto-related products and services. Examiners will continue to focus on the nature and scope of the banks' product and services offerings, customer base, and geographic footprint in assessing the adequacy of banks' technology and modeling solutions and abilities to meet the requirements of the 2020 AML Act and other BSA and terrorist finance-related regulations.

The entire OCC Supervision Operating Plan may be found here.

Phelps advises banks on the full suite of operational, transactional, and regulatory matters; risk mitigation; capital markets; and other activities. The emergence of competitive FinTech startups over the last decade have further presented banks with extraordinary opportunities and challenges. Our team understands these market forces and their complexities, and helps financial institutions navigate the new frontier.

For more information regarding the OCC Supervision Operating Plan or exam readiness, please contact Chris Couch, or any member of the Phelps banking team.