“Heightened Expectations”
for Corporate Governance
AIBA 2nd Annual Compliance Seminar
June 14, 2012
Lester Miller, Senior International Advisor
International Banking Supervision
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, principlesbased 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:
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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.