The Office of the Comptroller of the Currency (OCC) recently released its Autumn 2023 Semi-Annual Risk Outlook, which provides an in-depth look at the major challenges facing the federal banking system.。The report notes that credit, market, operational and compliance risks are the main themes affecting the banking landscape。

Key Topics: Credit, Market, Operational and Compliance Risk

The OCC report highlights rising credit risks due to rising interest rates, increasing vulnerability of commercial real estate lending, prolonged inflation, declining corporate profitability and a potential slowdown in economic growth.。At the same time, compliance risks remain high due to increased focus on ensuring equal access to credit, fair treatment of consumers, adoption of innovative technologies and expanded partnerships with third parties。

Emerging Roles and Risks of Artificial Intelligence in Banking

Despite the potential benefits of widespread adoption of AI in the banking sector, the OCC sees it as an emerging risk.。

The report highlights the challenges associated with AI, including compliance risk, credit risk, reputational risk, and operational risk.。While AI holds promise for efficiency and innovation, careful management is essential to reduce its inherent risks。

Buy-and-Pay "Loan Guide.

In addition to risk identification, the Office of the Comptroller of the Currency has issued guidance on "pay-as-you-go" (BNPL) loans.。The guidance highlights the risk management of BNPL loans, which are paid in four or fewer instalments with no financial charge.。

OCC Acting Comptroller Michael Hsu also stressed the importance of taking a responsible approach in the BNPL market, especially as the holiday shopping season approaches.。The guidance requires banks to adhere to clear underwriting, repayment terms, pricing and safeguards to ensure transparency in marketing materials and disclosure。

Third-Party Risk Management: Core Considerations

Donna Murphy, Acting Deputy Comptroller, Office of Financial Technology, OCC, highlights the "importance" of third-party risk management。This emphasis comes against the backdrop of increasing collaboration between banks and fintech companies。Murphy's speech to the House Subcommittee on Digital Assets, Fintech and Inclusion reaffirmed the potential benefits of third-party partnerships, but also highlighted the need for strong risk management to protect consumers and maintain the overall safety and soundness of banks.。