Hard-hitting competition, cybersecurity threats and AML management all seen as ‘key risks’ in report

Aggressive competition from non-bank lenders in the marketplace, cybersecurity threats and management of money laundering compliance are “key risks” outlined for national banks and savings associations in a report released Thursday.

The Semiannual Risk Perspective for Fall 2017, released by the Office of the Comptroller of the Currency (OCC) covers risks facing the banks and federal savings associations based on data as of June 30, 2017. The OCC said the report identifies key concerns in credit, operational and compliance risks for the banking system.

More specifically in credit risk, the report states that aggressive competition, tighter spreads and slowing loan growth are “driving incremental easing in underwriting practices and increasing concentrations in select loan portfolios — leading to heightened risk if the economy weakens or markets tighten quickly.”

“The credit market continues to be influenced by strong competition, particularly from non-bank lenders, and heightened asset valuations,” the report states. “In addition, the long economic recovery and expansion may collectively increase lender complacency. In this environment, lenders need to focus on maintaining sound credit standards within risk tolerances and understanding the potential credit risks that may be exposed under less benign economic conditions.”

In operational risk, the report identifies “increasing complexity” of cybersecurity threats as a key concern. It also points to use of third-party service providers as an operational risk and describes increasing concentrations in them for some critical operations as “key” risks.

“The speed and sophistication of cybersecurity threats are increasing,” the report notes. “Banks continually face threats seeking to exploit bank personnel, processes, and technology. These threats target large quantities of personally identifiable information and proprietary intellectual property and facilitate fraud and misappropriation of funds at the retail and wholesale levels.”

Under compliance risks, the report cites rising challenges in managing Bank Secrecy Act (BSA) requirements. “The challenge for banks to comply with BSA requirements persists due to dynamism of money laundering and terrorism-financing methods,” the report states. “Also, bank offerings using new or evolving delivery channels may increase customer convenience and access to financial products and services, but banks need to maintain a focus on refining or updating BSA compliance programs to address any vulnerabilities created by these new offerings, which criminals can exploit.”

The report adds that BSA and anti-money laundering (AML) compliance risk management systems may not keep pace with evolving risks, constraints on resources, changes in business models, and an “increasingly complex risk environment.”

OCC Semiannual Risk Perspective for Fall 2017