Insights

10 July 2024

Proposed OCC rules for $100b+ banks will spur Internal Audit hiring

The Office of the Comptroller of the Currency (OCC) plans to expand recovery planning requirements for big U.S. banks.

The proposal would expand the guidelines to apply to insured national banks, Federal savings associations, and Federal branches with average total consolidated assets of $100 billion or more, down from the current $250 billion threshold.

The OCC also proposes to incorporate a testing standard and clarify the role of non-financial risks in recovery planning.

At MBK Search, we expect that this will spur hiring in key risk management and compliance functions. Here are the key takeaways:

  • Expanded Coverage to $100 Billion Banks

    Banks with average total consolidated assets of $100 billion or more would be required to develop and maintain recovery plans. The recent failures of some banks in this range have spurred the OCC into action, saying banks are susceptible to contagion effects and need robust recovery planning.

    • New Testing Requirement

    The OCC wants banks to test their plans. The proposal would require covered banks to test their overall recovery plan and each plan element at least annually.

    While the rule doesn’t outline specific testing actions or methodologies, it needs to tick off the following:

    a) Ensure that the plan’s triggers reflect the bank’s vulnerabilities and provide timely notice of increasingly severe stress.

    b) Encourage management and the board to show that the bank has identified credible options and is prepared to execute these options during severe stress.

    c) Provide similar assurances regarding the other elements of the plan and the plan as a whole.

    d) Be risk-based and reflect the bank’s size, risk profile, activities, and complexity.

    • Increased Focus on Non-Financial Risks

    While covered banks have generally successfully addressed financial risks in their recovery plans, the OCC says there has been inconsistent consideration of non-financial risks like operational and strategic risks.

    Given banks’ exposure to risk from innovation, digitization, and optimization efforts, the proposal emphasizes that recovery plans should appropriately consider financial and non-financial risks.

    • Internal Audit Roles in Demand

    As banks expand their recovery planning efforts, there will likely be increased demand for governance, risk, compliance, and internal audit roles.

    Developing and maintaining robust recovery plans requires strong oversight from senior management and boards. Risk and compliance professionals will be needed to identify and monitor key financial and non-financial risks.

    Internal audit will be critical in testing plans and assessing their effectiveness. Experienced individuals in these areas will be essential to meeting the new requirements.

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