Lester miller senior international advisor international banking supervision
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Lester Miller, Senior International Advisor International Banking Supervision. “ Heightened Expectations” for Corporate Governance AIBA 2 nd Annual Compliance Seminar June 14, 2012. Agenda. OCC Supervisory Focus: Heightened Expectations (HE) for Large Banks

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Lester Miller, Senior International Advisor International Banking Supervision

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Lester miller senior international advisor international banking supervision

Lester Miller, Senior International Advisor

International Banking Supervision

“Heightened Expectations”for Corporate GovernanceAIBA 2nd Annual Compliance SeminarJune 14, 2012


Agenda

Agenda

OCC Supervisory Focus:

  • Heightened Expectations (HE) for Large Banks

    (Generally over $50B in total assets)

    • Progress Assessment

    • OCC Focus

  • Federal Branches


Large bank supervision focus

Large Bank Supervision Focus

Heightened Expectations

  • Sanctity of the charter.

  • Board willingness to provide credible challenge.

  • Talent management and compensation.

  • Risk appetite – defining and communicating across the company.

  • Strong audit and risk management functions.


Large bank supervision focus1

Large Bank Supervision Focus

HE Progress Assessment

  • Banks made notable changes to strengthen governance practices.

  • Added expertise to their boards.

  • Reorganized risk functions to improve independence and oversight.

  • Invested in technology and talent.

  • Implemented first generation risk appetite frameworks.

  • Elevated stature of many independent risk functions.

  • Lines of business are taking ownership of risk.

  • Identified ways to enhance internal audit.


Large bank supervision focus2

Large Bank Supervision Focus

HE Progress Assessment (continued)

  • Despite progress, work remains.

  • Top supervisory priority in our largest banks.


Heightened expectations

Heightened Expectations

Sanctity of charter – OCC focus

  • Assess governance structure to ensure bank safety and soundness.

  • Expectation that appropriate control systems are in place.


Heightened expectations1

Heightened Expectations

Board credible challenge – OCC focus

  • Discuss risks, issues, and leading practices in risk management with independent board members.

  • Determine if board and management have a prudent, principles-based approach to decision-making.


Heightened expectations2

Heightened Expectations

Talent management and compensation – OCC focus

  • Talent Management - Ensure the board, management, and risk functions have adequate skills.

  • Compensation Practices – Ensure compensation plans:

    • balance risk/reward,

    • are compatible with effective controls,

    • and are competitive for attracting and retaining necessary talent.


Heightened expectations3

Heightened Expectations

Risk Appetite – OCC focus

  • Risk Appetite Statements – Ensure these contain both qualitative and quantitative tolerances, address all relevant risks, and tolerances are reasonable.

  • Strategy and Planning Processes – Ensure the bank has a prudent strategic vision and plans align with risk appetite.

  • Monitoring – Ensure processes monitor alignment with tolerances and escalate exceptions.

  • New or changed products and services – Ensure evaluation against risk tolerance and subject to effective risk management.


Heightened expectations4

Heightened Expectations

Strong audit and risk management – OCC focus

  • Clarity of Roles & Responsibilities – Evaluate for business lines, support functions, independent risk, audit, and other control functions.

  • Risk Culture - Determine how board and executive management establish & maintain a strong risk culture.

  • Suitable Stature/Independence – Evaluate status.


Heightened expectations5

Heightened Expectations

Strong audit and risk management – OCC focus (cont’d)

  • Independent Assessment – Determine if these functions provide reliable assessments of risk levels and trends.

  • Credible Challenge – Determine whether these functions are providing credible challenge.

  • Prioritize Areas – To achieve “strong” risk management and audit ratings.


Heightened expectations6

Heightened Expectations

Federal Branches - OCC focus

  • Continued progress under HE.

  • BSA/AML/OFAC supervision.


Heightened expectations7

Heightened Expectations

Federal Branches - OCC focus (cont’d)

  • Audit

    • Link universe to new products and expanding areas.

    • Ensure reasonable and supportable frequency of reviews.

    • Look at backlogs and staffing in operational areas.

    • OCC will leverage off audit possible.


Summary

Summary

In conclusion:

  • We are facing numerous complex issues and challenges.

  • Regulatory changes will have significant impact.

  • Expectations are high.

  • HE translate into better governance in managing risks.


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