Crypto, cybersecurity and climate at the center of OCC’s risk report

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Dive Brief: The Office of the Comptroller of the Currency (OCC) has highlighted the increase in digital assets, cybersecurity and the effects of climate change as emerging risks that banks should focus on in its biannual risk outlook for the fall 2021, which he released on Monday. Banks are weathering the COVID-19 crisis “with resilience, satisfactory credit quality and strong earnings,” the regulator said, adding that credit risk is moderate due to widespread government programs and poor management. appropriate risk. But weak loan demand and low net interest margins continue to weigh on banks’ performance, the OCC added. Monday’s report, which covers the risks facing financial institutions based on the June 30 database, presents data in five main areas: operating environment, banking performance, specific topics on emerging risks, trends in main risks and prudential actions. Dive overview:

It’s no surprise that the OCC urges banks to approach cryptocurrencies with caution.

As early as June, acting OCC chief Michael Hsu said he planned to review past actions regarding crypto that were taken under his predecessor, Brian Brooks. The regulator issued a statement last month requiring banks to seek OCC approval first before engaging in certain digital asset-related activities.

The OCC reiterated its call for due diligence and caution regarding the booming industry in Monday’s report.

“The OCC approaches crypto-related activities in the federal banking system very cautiously with a high degree of caution and expects its supervised institutions to do the same,” he said in the report. “Institutions overseen by the OCC should contact the appropriate OCC oversight office before engaging in any crypto-related activity.”

While the regulator has recognized that products and services based on crypto assets can create opportunities for banks and their customers, they can carry significant risks, the OCC added.

“Banks need to exercise due diligence and risk management as with other new, changed and expanded services,” the agency said in the report.

The OCC said more clarity on crypto is ahead, referring to the conclusion of a multi-agency “crypto sprint” that will result in the release of more guidance throughout 2022.

The OCC also referred to the stablecoins report of the President’s Financial Markets Task Force, which was also released last month, adding that the study identified key gaps in the prudential authority over financial markets. stable coins used for payment purposes.

Cybersecurity risks

The agency said it has observed an increase in ransomware attacks in financial services, including phishing emails targeting employees and compromised credentials to access networks through dial-up channels.

“Operational risk remains high as cyber attacks evolve, become more sophisticated and cause damage to various industries,” the OCC said in the report.

The increase in remote working and the use of personal computers and mobile devices reinforce the importance of effective cyber controls, the OCC said.

To mitigate cybersecurity risks, banks should implement multi-factor authentication or equivalent controls to authenticate access to sensitive systems, the regulator said.

“Network systems need to be properly configured and have effective patch management processes in place,” OCC said. “Banks must also ensure that critical systems and records are backed up and stored in immutable formats that are isolated from ransomware or other destructive malware attacks.”

Climate change

Monday’s report underscored the OCC’s commitment to act on the risk climate change poses to the financial system.

“These risks are due to the impacts of climate change on households, communities, businesses and governments in the United States and around the world,” the OCC said. “Banks are exposed to the physical and transitional risks presented by climate change, which can impact the security and soundness of the institutions supervised.”

The agency said it plans to finalize guidance on the climate risk management framework for large banks and develop more detailed expectations by risk area in 2022.

“We will review the progress of major banks in building climate risk management capacity. We also plan to conduct additional sector outreach,” OCC said.

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