The Office of the Comptroller of the Currency (OCC) is raising the profile of risk management as it wants board members at financial services firms to take a more active role in pushing compliance with “safe and sound” banking.
Board members of financial services firms are being told to take a more active role in pushing compliance with “safe and sound” banking practices and to oppose management proposals with “excessive risk taking,” according to the final guidelines on governance and risk management practices published by the Office of the Comptroller of the Currency (OCC).
The OCC guidelines are bolstering the role of the risk management function at financial institutions.
The final guidelines, largely unchanged from a previous version released in January, compel firms to follow a set of minimum standards intended to bolster the way they track and deal with risks.
In addition to the creation of a formal document that defines a firm’s “risk appetite,” affected institutions will need to ensure their boards of directors have “two independent members who are not part of the bank’s or the parent company’s management.”
The guidelines also contain provisions designed to ensure “active board oversight of a bank’s compliance with safe and sound banking practices,” such as vigorous discussion of management policies and “when necessary, opposing management proposals that could lead to excessive risk taking or pose a threat to safety and soundness.”
The OCC, a bureau of the U.S. Treasury department, regulates all large banks with a national charter as well as federal branches of foreign banks with more than $50 billion in assets.
“The standards announced today build on lessons learned from the financial crisis,” says Comptroller of the Currency Thomas J. Curry, in a statement about the original version of the guidelines released in January. “They will contribute to a safer financial system for all of us by providing clear and enforceable standards for the risk management and governance of our largest institutions. They provide additional supervisory tools to examiners of large national banks and federal savings associations, and they will measurably enhance our supervision of these institutions.”
The new guidelines come just after a recent survey of risk managers conducted by SunGard and the Professional Risk Managers’ International Association (PRMIA) revealed that the way the risk management function is viewed by firms is beginning to change.
Risk management is increasingly seen as a strategic core competency, rather than just a burdensome check-the-box regulatory obligation, according to the survey.
The survey showed impending stress tests conducted by the European Central Bank ranked lower on risk managers’ list of concerns than collateral consolidation and asset and exposure valuation.
“This could suggest … banks are beginning to focus more on longer term risk management capabilities,” the survey says.
“While it is surprising that regulatory requirements such as stress testing rank as a lower than expected priority, this also suggests that the practice of risk management is evolving to become more strategic and operational,” says Sven Ludwig, regional director of PRMIA and senior vice president, risk management and analytics at SunGard. “This is particularly evident when looking at today’s collateral and exposure management priorities.”
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