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

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


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

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 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 Focus

HE Progress Assessment (continued)

  • Despite progress, work remains.

  • Top supervisory priority in our largest banks.


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 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 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 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 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 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 Expectations

Federal Branches - OCC focus

  • Continued progress under HE.

  • BSA/AML/OFAC supervision.


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

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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